Congressional Research Service IN11262 (COVID-19 and Stimulus Payments to Individuals: Summary of the 2020 Recovery Rebates in the CARES Act (S. 3548))

Summary

CRS Insight IN11262, COVID-19 and Stimulus Payments to Individuals: Summary of the 2020 Recovery Rebates in the CARES Act (S. 3548), by Margot L. Crandall-Hollick, Acting Section Research Manager, dated March 20, 2020. It summarizes the bill's proposed direct payments of up to $1,200 per person ($2,400 for married joint filers) and $500 per child, structured as tax credits advanced to households that file an income tax return. It explains that taxpayers who filed a 2018 return would receive the credit in 2020 by direct deposit or check, with a 2019 return usable instead. The basic credit equals the greater of net income tax liability up to $1,200 or $600 for taxpayers with qualifying income, and the Insight gives simplified examples for different families.

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INSIGHTi

COVID-19 and Stimulus Payments to
Individuals: Summary of the 2020 Recovery
Rebates in the CARES Act (S. 3548)

Margot L. Crandall-Hollick
Acting Section Research Manager

March 20, 2020
The Coronavirus Aid, Relief, and Economic Security (CARES) Act (S. 3548) proposes direct payments of
up to $1,200 per person ($2,400 for married taxpayers filing a joint tax return) and $500 per child—“2020
recovery rebates.” Similar to the 2008 recovery rebates, these payments are structured as tax credits
advanced to households that file an income tax return. Taxpayers that filed a 2018 income tax return
would have this credit advanced to them in 2020, generally in the form of a direct deposit or check by
mail. Thus, these taxpayers do not need to wait until 2020 tax returns are filed in 2021 to claim the credit.
If they did not file a 2018 return, information from a 2019 return can be used for the advanced credit.
These payments are intended to broadly stimulate the economy in response to concerns about an
economic slowdown stemming from the COVID-19 pandemic.
This Insight provides a brief overview of the proposed 2020 recovery rebates, with several simplified
examples to illustrate payment amounts for different families.

Calculating the Credit Amount
The credit equals the greater of
1. the taxpayer’s net income tax liability up to $1,200 ($2,400 for married joint filers). Net
income tax liability is the taxpayer’s income tax liability before the child tax credit and
refundable tax credits (like the EITC); or
2. $600 ($1,200 for married joint filers) if the taxpayer has qualifying income. For the
purposes of the basic credit, qualifying income is either
(a) at least $2,500 of earned income, social security income, or veterans’ benefits; or
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(b) gross income above the standard deduction and $1 of net income tax liability.
All eligible taxpayers would receive the minimum basic credit of $600 ($1,200 married joint filers).
Taxpayers eligible for the credit can receive an additional $500 for each child that qualifies for the child
tax credit.
The total credit phases out at a rate of 5% of adjusted gross income (AGI) above $75,000 ($150,000 for
married joint returns).
As with any tax refund, these payments would not count as income or resources in determining eligibility
for, or the amount of, any federally funded public benefit program.
Lower-income taxpayers with little or no income tax liability would tend to receive a smaller credit, on
average. Tax credit amounts rise for higher-income taxpayers, until the tax credit phases out at the upper
end of the distribution. The distribution of the 2020 recovery rebates may be similar to that of the 2008
recovery rebates.

Other Features of the Proposed 2020 Recovery Rebates
 SSN requirement: Taxpayers must provide social security numbers (SSNs) for
themselves, their spouse (if married filing jointly), and any child for whom they claim the
$500 child credit. Adoption taxpayer ID numbers (ATINs) are also acceptable for adopted
children. Taxpayers who provide an individual taxpayer identification number (ITIN) are
ineligible for the credit. Hence, married couples in which one spouse has an SSN and
another has an ITIN are ineligible for the credit.
 Nonresident aliens: The credit is not available to nonresident aliens.
 Territories: The law includes a provision requiring the U.S. Treasury to make payments
to territories (mirror code and non-mirror code) equal to the aggregate amount of credits
claimed by their residents.
 Past-Due debts: The credit cannot be reduced for certain unpaid debts, including debts
owed to a federal agency (excluding child support), past-due state income taxes, and
unemployment compensation debts.
 Appropriations: The bill appropriates $396.45 million in FY2020 for the administration
of these payments.

Advancing the Proposed 2020 Recovery Rebates
The bill would advance the credit, which would be received as a direct deposit or a check by mail.
Without this advancing provision, taxpayers would have to wait until they file their 2020 income tax
returns in early 2021 to claim this credit.
The advanced credit amount is estimated using the same formula as the 2020 recovery rebates, but based
on taxpayers’ 2018 income tax return information (if the taxpayer did not file a 2018 income tax return,
2019 income tax return information could be used instead).
If, when taxpayers file their 2020 income tax returns in 2021, they find that the advanced credit is greater
than the actual credit, they would not be required to repay the excess credit. In contrast, if the advanced
credit is less than the actual credit, the taxpayer would be able to claim the difference on their 2020
income tax return.
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Simplified Examples of 2020 Rebate Amounts
The following examples illustrate the rebate amount received in 2020 using the taxpayer’s 2018 tax
return. These are simplified examples and assume the taxpayer files a 2018 return, meets all the eligibility
criteria of the credit, and only claims the standard deduction and child credit and EITC (if eligible).
Income tax liabilities are estimated using TAXSIM.

Low-income disabled individual with only Supplemental Security Income (SSI)
In general, cash public assistance for low-income populations, such as SSI, is not considered gross
income and is excludable from gross income under a limited general welfare exclusion. In addition—
excluding social security retirement benefits (§ 86(d)) and veterans’ benefits—cash public assistance for
low-income populations would not be considered qualifying income as defined in this bill. So if SSI is the
individual’s only source of income, they would be ineligible for the rebate.

Low-income single worker with $10,000 of earned income
This individual has $0 of net income tax liability prior to applying the EITC (actual liability after the
EITC is -$403). Because they have qualifying income (earned income above $2,500), they would receive
a $600 rebate.

Low-income senior with $15,000 of social security income
This individual has $0 net income tax liability (and $0 in actual liability). Because they have qualifying
income (social security benefits above $2,500) they would receive a $600 rebate.

Married couple with two children and $50,000 of earned income
The couple has $2,739 in net income tax liability prior to applying the child credit and EITC (actual
liability after these credits is $1,575). They would receive a $3,400 rebate ($2,400 basic credit and $500
for each child).

Married couple with two children and $200,000 of earned income
The couple has $30,819 in net income tax liability prior to applying the child credit (actual liability after
this credit is $26,819). Before applying the phaseout, the rebate would be $3,400. As a result of the
phaseout, they would receive a rebate of $900.

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