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The CARES Act: What US citizens need to know during COVID-19

On March 27, the US government signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law. The $2 trillion relief package provides support to individuals, businesses and government organizations during the COVID-19 pandemic.

While the Act contains many components, the Recovery Rebate—or, the “Economic Impact Payment”, as noted on the IRS website—is intended to provide much-needed financial support to individuals. All US citizens (including those that live outside the United States) as well as resident aliens could potentially qualify for the Recovery Rebate, even if they don’t owe US tax.

How much could you receive?

To receive the CARES Recovery Rebate, you must meet certain adjusted gross income (AGI) criteria. The amount you receive will depend on your marital status, income and whether you have any qualifying children. Specifically, rules around CARES Recovery Rebates are as follows:

  • A single adult (or a married adult who is filing separately) with AGI of $75,000 or less on their most recent tax return will get a cash rebate of $1,200.
  • A single adult with AGI between $75,000 and $99,000 will receive a reduced amount—a five percent decrease per dollar of income in excess of the AGI threshold (i.e., $50 per $1,000 of income in excess of $75,000).
  • A married couple filing jointly with AGI of $150,000 or less will receive $2,400.
  • A married couple filing jointly with AGI between $150,000 and $198,000 will receive a reduced amount—a five percent decrease per dollar of income in excess of the AGI threshold (i.e., $50 per $1,000 of income in excess of $150,000).
  • An individual filing Head of household with AGI of $112,500 or less will receive $1,200, phased out between $112,500 and $136,500.
  • Each qualifying child under 17 entitles the recipient parent to an additional $500. The qualifying child must have a Social Security Number (SSN).

Do you qualify?

In addition to meeting certain AGI criteria, qualifying individuals must

  • have an SSN;
  • not be claimed as a dependent on someone else’s return; and
  • file a tax return for 2018 or 2019 or be in receipt of social security or railroad retirement benefits if they hope to receive a cheque in 2020.

Married couples must make sure that both spouses

  • have an SSN on their tax return if they hope to receive the full amount of the cash credit; and
  • file a return (if they’re choosing to file separately).

(N.B.: The IRS has promised guidance for those who are not otherwise required to file a tax return.)

Additionally, non-US citizens only qualify if

  • they are Green Card Holders, or
  • they meet the Substantial Presence Test.

Additional points to note

  • Taxpayers who owe zero US tax (including those whose income is below the threshold normally requiring filing) can still receive the Recovery Rebate.
  • If US Treasury has your payment details on file, taxpayers will get direct deposit in weeks.
  • Cheques will be sent via mail to those who have not provided the IRS with direct deposit information to a US bank account. Cheques by mail will take much longer to process and the US government has until the end of 2020 to provide the advance refund cheques via the CARES Act.
  • The rebates will not count as taxable income for recipients. Rather, the rebate is a credit against tax liability and is refundable for taxpayers who do not have any tax liability to offset.
  • This is a one-time payment. There is currently consideration by policymakers to create additional rebates.
  • Taxpayers who are eligible for a larger rebate based on 2020 income will receive it in the 2020 tax season.
  • Taxpayers who use the foreign earned income exclusion, but have income otherwise exceeding the threshold(s), still qualify if their AGI meets the threshold.

We are here to help

If you’re a US citizen living in Canada, you could potentially qualify for financial support under the CARES Act. If you’re unsure—or if you have questions about some of the information outlined above— please don’t hesitate to reach out to your Grant Thornton advisor.