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Economic Impact Payments – What You Need to Know

The Treasury Department and the IRS have announced that distribution of economic impact payments will begin in April 2020. No action will be required for most people. But for those who do not typically file returns and for those that have not filed returns for 2018 or 2019, questions remain about how these taxpayers will be able to receive their payment. Here is what taxpayers need to know.

General Rules Regarding Economic Impact Payments

Eligibility for the Economic Impact Payment

Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. This reduction applies to the economic impact payment for a qualifying child. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible. Social Security recipients and railroad retirees who are otherwise not required to file a tax return are also eligible and will not be required to file a return (see below for more details.)

Some taxpayers may not qualify for an economic impact payment. Taxpayers will not qualify if:

  1. they have income in excess of the income thresholds;

  2. the taxpayer can be claimed as a dependent on someone else’s return;

  3. the taxpayer does not have a valid Social Security number (a taxpayer with an ITIN will NOT qualify);

  4. the taxpayer is a nonresident alien; or

  5. the taxpayer filed Form 1040-NR or Form 1040NR-EZ, Form 1040-PR or Form 1040-SS for 2019.

Amount of the Economic Impact Payment

Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples and up to $500 for each qualifying child. As noted above, the payment amount will phase out based on income thresholds.

Issuance of the Economic Impact Payment

The vast majority of people do not need to take any action. The IRS will calculate and automatically send the economic impact payment to those eligible. For people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment.

Taxpayers may want to consider filing a 2019 tax return as soon as possible if the filing of that return would result in an increased economic impact payment. For example, if the taxpayer is able to claim a qualifying child for the 2019 tax year that they were unable to claim for 2018, filing the 2019 return as soon as possible could result in an increased payment. Another example would be if the taxpayer's income level for 2019 was less than 2018, resulting in the taxpayer falling within the income thresholds.

The economic impact payment will be deposited directly into the same banking account reflected on the return filed. If a banking account is not reflected on the return, paper checks will be mailed to the address on return.

The Treasury Department plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.

If a taxpayer is not typically required to file a tax return, they can still receive the economic impact payment.

Social Security and Railroad Retirement recipients who are not typically required to file a tax return need to take no action. The IRS will use the information on the Form SSA-1099 and Form RRB-1099 to generate economic impact payments of $1,200 to these individuals even if they did not file tax returns in 2018 or 2019. Social Security Disability Insurance (SSDI) recipients are also part of this group who do not need to take action.

Recipients will receive these payments as a direct deposit or by paper check, just as they would normally receive their benefits. For Social Security, railroad retirees and SSDI recipients who have qualifying children, additional steps can be taken to receive $500 per qualifying child.

Other individuals, such as low-income workers and certain veterans and individuals with disabilities who are not required to file a tax return, are still eligible for the economic impact payment. This may require these taxpayers who would not typically file a tax return to file a return for 2018 or 2019. The IRS will soon provide guidance for these individuals on the steps to take to get their payment as soon as possible.

If a taxpayer has a filing obligation but has not filed a tax return for 2018 or 2019, they can still receive the economic impact payment.

The IRS urges anyone with a tax filing obligation who has not yet filed a tax return for 2018 or 2019 to file as soon as they can to receive an economic impact payment. Taxpayers should include direct deposit banking information on the return so that the they can receive the payment more quickly than by mailing a paper check.

According to the IRS, economic impact payments will be available throughout the rest of 2020. However, the sooner the taxpayer can file their 2018 or 2019 returns, the sooner they will be issued the payment.

Watch out for scammers and fraudsters.

As our previous guidance indicated, IRS Criminal Investigation and U.S. attorneys from around the country have assembled a task force to identify and prosecute anyone attempting to use the COVID-19 relief payments as an opportunity to defraud people. The IRS is cautioning people to be on the lookout for scammers and fraudsters trying to use economic impact payments as an opportunity to steal the taxpayer's personal information and financial assets. The IRS specifically stated that it will not call, text, send emails or contact taxpayers on social media, asking for personal or bank account information. The IRS further cautions taxpayers to watch out for emails with attachments or links claiming to have information related to the economic impact payment. 

For security reasons, the IRS plans to mail a letter about the economic impact payment to the taxpayer’s last known address within 15 days after the payment is paid. The letter will provide information on how the payment was made and how to report any failure to receive the payment. If a taxpayer is unsure they are receiving a legitimate letter, the IRS urges taxpayers to first visit www.IRS.gov to protect against scam artists.

© 2022 Varnum LLPNational Law Review, Volume X, Number 99

About this Author

Angelique Neal Tax Attorney

Angelique is a member of Varnum’s Tax Team. Her practice includes all aspects of federal and state tax controversy and tax planning, including: tax audits, appeals, and litigation; tax collections – liens, levies, offers in compromise, and other collection alternatives; employment tax issues; and civil and criminal tax litigation. In addition, she handles tax and reporting compliance issues with offshore financial accounts and other assets. She represents individuals and business clients from small businesses to multimillion dollar corporations, including clients with overseas interests....

Eric M. Nemeth, Tax Planning Attorney, Varnum, Financial Controversy Lawyer

Eric is a partner and leads the tax team. He concentrates on tax and financial controversy (IRS and various States) from examinations appellate conferences, criminal investigations, witness representation and civil and criminal tax litigation. He works with government regulatory and general tax matters. He has served as Senior Trial Attorney for the District Counsel of the Internal Revenue Service and as Special Assistant U.S. Attorney for the Department of Justice. He is a frequent speaker on tax enforcement and has served as an expert witness and binding arbitrator....