People who got a big raise or promotion last year may be better off waiting to file their tax return until after the U.S. government sends out billions in rebates.
The rebates—one of the pillars of the virus relief package (H.R. 748) signed into law Friday—phase out above certain levels of income. So people who haven’t filed their 2019 return yet might want to hold off, as they could qualify for a larger rebate, or get one they otherwise wouldn’t, tax professionals said.
The Treasury Department, which has already pushed the annual tax filing deadline to July, will base the payments on 2018 returns for people who haven’t filed yet for 2019. While those who will receive smaller checks than they should have can get the rest of the money they qualify for later on, the legislation doesn’t include any sort of clawback provision that would require people to repay the rebate if they later file a 2019 return that would have generated a smaller rebate.
“If somebody would be better served using a 2018 return than a 2019 return, then frankly they should use it,” said Richard L. Lieberman, senior counsel at Dykema Gossett PLLC. “And I don’t see anything in here that says there’s any risk to doing so.”
The law provides a rebate of $1,200 to individuals making $75,000 or less and $2,400 for couples that make $150,000 or less. The rebate is reduced by $5 for each $100 in income over those thresholds, so payments completely phase out for individuals making more than $99,000 and for couples making more than $198,000.
Taxpayers also will receive another $500 per child.
The checks, which will not be considered taxable income for 2020, are part of a government effort to get people money quickly in an attempt to blunt the economic effects of the new coronavirus pandemic. President Donald Trump initially said he wanted to see the money sent to households in under two weeks, a timeframe that will be challenging for the IRS to meet. Payments going directly to bank accounts are expected to take a few weeks, but payments that the IRS must send out as checks could take longer.
Some Should File Now
Tax professionals say people need to consider their facts and circumstances, and file quickly if they expect to receive a large check.
For example, people who were above the income thresholds in 2018, but are now below them after seeing their incomes fall in 2019, should quickly file their returns in order to be eligible for a larger rebate.
For people who were ineligible in 2018 and perhaps took a pay cut or got a divorce that put them under the income thresholds in 2019, “there needs to be a real information campaign to get people to file on time,” said Meg Wiehe, deputy director of the Institute on Taxation and Economic Policy.
Caroline Bruckner, a managing director of American University’s Kogod Tax Policy Center, said the same for the low-income taxpayers she helps as part of the Volunteer Income Tax Assistance program.
“I want those people to file immediately,” she said. “Because I want them to get a refund, and I want them to have their most current up-to-date direct deposit information on file with the IRS, so that they can pump out these checks.”