The CARES Act Overview
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020. The CARES Act is comprehensive legislation intended to provide emergency assistance for individuals, families and businesses affected by the 2020 coronavirus pandemic.
The Act will affect individuals in a variety of ways, depending on their unique circumstances. This post is intended to address questions related to how the rebate or stimulus payments may generally affect individuals who are divorcing, divorced, or separated. As always, we recommend that you seek advice from a tax professional, financial advisor, or a licensed family law attorney if you have specific questions.
Recovery Rebates for Individuals, a/k/a Stimulus Payments
In the coming weeks, many people will be receiving a “recovery rebate” from the U.S. Government. The rebate is better known currently as a “stimulus payment” or “stimulus check.” According to the Act, the payment is based upon your adjusted gross income or “AGI” as claimed in your 2019 tax return; however, if you have not filed your 2019 return, the IRS can also look to your 2018 tax return. In order to receive a stimulus payment, you must have filed a 2018 or 2019 tax return. If you did not file a tax return in 2018 or 2019 because you did not earn any income or were receiving federal benefits, you may still be eligible for the stimulus payment. For instance, the IRS may also look to information provided on your “Social Security Benefit Statement”, or “Social Security Equivalent Benefit Statement”.
Your AGI is readily ascertainable by reviewing your federal tax return. Here is a general overview of the rebate amounts:
- Individuals Earning $75,000 (Or Less) AGI = $1,200
- Individuals (Filing Head of Household) Earning $112,500 (Or Less) = $1,200
- Individuals (Married Filing Jointly) Earning Less than $150,000 AGI = $2,400
Reduced Rebate Amounts – Limitation Based on Income:
- Individuals Earning More than $75,000 But Less than $99,000 = Between $0 and $1,200
- Individuals (Filing Head of Household) Earning More than $112,500, but less than $136,500 = Between $0 and $1,200
- Individuals (Married Filing Jointly) Earning More than $150,000, but less than $198,000 = Between $0 and $2,400
Further, the payment amounts listed above are increased by $500 per qualifying child, regardless of the number of children you have. We understand that if your income is too high to be eligible to receive the stimulus payment, you will also not receive the $500 credit.
FAQ: CARES Act & Family Law
In the case of separated or divorced parents, which parent will receive the $500.00 payment per qualifying child?
According to the Act, payments will automatically be made electronically to an account in which the tax payer provided to the IRS for purposes of receiving his or her tax refund. Alternatively, the payment will be mailed to the taxpayer’s last reported address on his or her 2018 or 2019 income tax return. As such, we anticipate that the parent who claimed the child or children on the 2019 return will receive the $500 payment(s). If neither party has filed their 2019 return, we anticipate that the parent who claimed the child or children on the 2018 return will receive the $500 payment(s).
Who should get to keep the $500 payment per qualifying child?
Because stimulus payments are technically an advance or prepayment of a 2020 tax credit, it is reasonable to suggest that a parent who is entitled to claim the child or children on his or her 2020 tax return receive the rebate. Again, this is because the amount received will be factored into the parent’s 2020 tax return.
However, so long as a parent has parenting time with the child or children, it may be reasonable for the parent who has lost his or her job, or who has received a reduction in pay, to receive all or a portion of the payment. Courts will likely be slow to resolve disputes or motions regarding the modification of support due to a loss or reduction of income because of the coronavirus. As such, we encourage parties to work together so that the child will benefit from the money paid on their behalf.
I previously filed a joint return with my spouse, but we are now separated—who should receive the stimulus payment?
As explained above, the IRS will attempt to disburse stimulus payments electronically to the bank account on file with the IRS. If no bank account is on file with the IRS, the IRS will mail the stimulus payment to the address last reported, either on the 2018 or 2019 return. As such, it is possible that the return will be made to a bank account that you no longer have access to or mailed to an address where you no longer live but your spouse does.
If you are currently divorcing, the stimulus payment is a form of marital property. If your spouse is unwilling to utilize the funds in a manner that you agree to, or, will not share the payment with you, you should speak to an attorney about how this money could be recovered later in the divorce or addressed in your Separation Agreement.
If you are already divorced, consider contacting your ex-spouse about equally sharing the payment. Technically, the Act provides that in cases where a payment is made with respect to a joint return, half of the credit “shall be treated as having been made or allowed to each individual filing such return.” Our interpretation of this is that the payment should be split or shared between the joint filing parties.
How will past due tax debts affect my stimulus payment?
We understand that most people will receive the full stimulus amount, even if they owe back taxes or money to a federal or state agency, i.e. student loan payments. However, if you are behind on your child support payments, your stimulus payment will likely be reduced by the amount you owe in child support. The amount to be offset will depend on the amount of past due and unpaid child support owed and currently reported to the government.
If you have other questions related to the CARES Act, please contact one of our qualified attorneys or check back soon for future blog posts on the Act.