COVID-19 and Direct Payments to Individuals: Estimated Impact of Recovery Rebates in the March 22 CARES Act on Family Incomes (IN11270, Version 2)

Summary

Insight IN11270, Version 2, of the Congressional Research Service, dated March 25, 2020, by Conor F. Boyle and Jameson A. Carter, on recovery rebates and family incomes. It estimates the effect of the 2020 recovery rebate in a draft of the CARES Act circulated on March 22, 2020, by comparing the rebate a family would receive with its estimated monthly income. The median family living in poverty would receive a rebate equal to 182% of its monthly income, and the median family near poverty, at 100% to 199% of the poverty threshold, would receive 92%. Similar recovery rebates were sent in response to the 2001 and 2008 recessions.

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INSIGHTi

COVID-19 and Direct Payments to
Individuals: Estimated Impact of Recovery
Rebates in the March 22 CARES Act on Family
Incomes

Conor F. Boyle
Analyst in Social Policy

Jameson A. Carter
Research Assistant

March 25, 2020
A draft of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, circulated on Sunday,
March 22, 2020, includes many provisions designed to stimulate the economy in response to the effects of
the COVID-19 pandemic. One such provision of the March 22 draft is the “2020 recovery rebate,” a
direct payment made to individuals. Similar “recovery rebates” were sent to individuals in response to the
2001 and 2008 recessions. Several Members of Congress have recently proposed varying forms of direct
payment, and an earlier version of the CARES Act (introduced as S. 3548) includes a direct payment
proposal. The direct payment proposed in the March 22 draft is structured similarly to the 2008 recovery
rebates. The rebate takes the form of an advance refundable tax credit and would rely on the tax system to
pay the credit to eligible individuals. As such, this Insight refers to eligible individuals as “taxpayers.”
In general, taxpayers would be eligible for a rebate of $1,200 ($2,400 if the taxpayer is a married couple
filing jointly). Taxpayers could increase the amount they receive by $500 for each child that they could
claim for the child tax credit. The rebate amount would gradually phase out for higher-income taxpayers.
The March 22 draft includes other provisions related to the timing of rebate payments, the information
used to determine the rebate amount, and administrative challenges related to paying the rebate.

Congressional Research Service
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IN11270

CRS INSIGHT
Prepared for Members and
Committees of Congress
Congressional Research Service 2

How Much Would Family Incomes Increase Due to the March 22 CARES
Act Proposed Direct Payment?
Policymakers may consider the extent to which a direct payment could increase family income. To
estimate the potential impact of the 2020 recovery rebates, CRS calculated the amount families would
receive under the proposal in the March 22 CARES Act. CRS then compared the estimated rebate a
family would receive to their estimated monthly income. Table 1 presents families’ median estimated
monthly income and the median percentage of monthly income that families would receive as a rebate.
These estimates are broken down by the ratio of family income to the poverty threshold to show the
impacts of the 2020 rebate across the income distribution.
Table 1 estimates that the median family living in poverty would receive a rebate that amounts to 182%
of the amount of the family’s monthly income. The median refers to the midpoint of the distribution—
50% of families in poverty would receive a rebate that is less than 182% of their estimated monthly
income, and 50% of families in poverty would receive a rebate that is greater than 182%. The median
family living near poverty (100%-199%) would receive a rebate equal to 92% of their estimated monthly
income.

Table 1. Estimated Median % of Monthly Income Families Would Receive as a 2020
Recovery Rebate Under the March 22 CARES Act
Median percentage of estimated
Median estimated monthly monthly income families would
Ratio of family income to poverty income (before rebate) receive as a rebate

Less than 100% (below poverty) $850 182%
100%-199% $2,100 92%
200%-299% $3,570 56%
300%-399% $4,930 41%
400%-499% $6,240 31%
500% or greater $10,440 4%
Total $3,600 57%

Source: CRS calculations via the TRIM3 microsimulation model using 2016 data.
Notes: Median estimated monthly income rounded to the nearest 10. Estimated monthly income was calculated by
dividing families’ annual income by 12. Income reported in this analysis reflects the Supplemental Poverty Measure (SPM)
definition of income and includes a family’s after-tax wage income, self-employment income, the value of refundable tax
credits, Social Security, Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), assisted
housing benefits, childcare subsidies, and more. SPM poverty thresholds were used to calculate the ratios of family income
to poverty.

Policymakers may also consider the extent to which the phaseout provision of the recovery rebates would
limit benefits received by higher-income families. The March 22 draft phases out the rebate paid to a
taxpayer by 5% of the taxpayer’s adjusted gross income (AGI) that exceeds $75,000 ($112,500 for
taxpayers filing as a head of household and $150,000 for married taxpayers filing jointly). Table 2
illustrates how the phaseout would affect rebate amounts for taxpayers in different parts of the income
distribution. Specifically, taxpayers are categorized as (1) receiving a rebate that is not impacted by the
phaseout, (2) receiving a rebate that is partially reduced by the phaseout, or (3) not receiving a rebate, as
the rebate amount is fully reduced to $0. The estimates in Table 2 show that 82% of families would not be
impacted by the phaseout and would receive the full rebate. Almost no families with incomes below
300% of poverty would have their rebate partially or fully reduced by the phaseout.
Congressional Research Service 3

Table 2. Estimated Phaseout Status of Families Eligible for a 2020 Recovery Rebate Under
the March 22 CARES Act
Family is not Family receives Family receives
Ratio of family Percentage of all impacted by partial credit due no credit due to
income to poverty families phaseout to phaseout phaseout

Less than 100% (below poverty) 15% 100% 0% 0%
100%-199% 27% 100% 0% 0%
200%-299% 19% 98% 2% 0%
300%-399% 14% 87% 12% 1%
400%-499% 8% 65% 29% 6%
500% or greater 16% 24% 31% 46%
Total 100% 82% 10% 8%

Source: CRS calculations via the TRIM3 microsimulation model using 2016 data.
Notes: Totals may not sum due to rounding. Supplemental Poverty Measure (SPM) poverty thresholds and the SPM
definition of income were used to calculate the ratios of family income to poverty.

Assumptions and limitations
These estimates should be considered with a number of assumptions and limitations in mind, including
the following:
1. This analysis is based on the current tax code. It uses income data from 2016, the most
recent year for which data are available for use in the TRIM3 model.
2. This analysis estimates monthly income using an annual measure and does not reflect
potential month-to-month fluctuations in family income.
3. This analysis does not estimate decreases in income that families may experience as a
result of COVID-19.
4. This analysis assumes that every eligible family would receive exactly the recovery
rebate amount to which it is entitled. This analysis does not account for taxpayers who
are not required to file an income tax return—it assumes that all eligible taxpayers will
file, despite differences in tax filing rates based on age and receipt of public assistance.
5. The weighting used in Table 2 does not take family size into account. As a result, large
families are underrepresented in the analysis presented in Table 2.

IN11270 · VERSION 2 · NEW
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