April 29, 2020 Elder Law

The CARES Act Explained

By David M. Godfrey

The "Coronavirus Aid, Relief, and Economic Security Act" or the "CARES Act," authorizes economic stimulus payments of up to $1,200 to most Americans.  There are two goals, first is to replace lost earnings as a result of actions taken to slow the spread of the virus that causes COVID-19, and the second is to stimulate economic activity by keeping money flowing.  The payment of $1,200 will go out to adults (18 and over) with a payment of $500 per child to the parents of children from birth through the age of 16. To receive payment the person must have a Social Security number. 

The payments are being made based on the adjusted gross income on 2018 or 2019 tax returns.

The payments are being made based on the adjusted gross income on 2018 or 2019 tax returns.

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The payments phase out for persons with income above $75,000 or $150,000 for married couples who file joint tax returns, at the rate of $5 for every $100 in adjusted gross income over that income limit. The payments are being made based on the adjusted gross income on 2018 or 2019 tax returns.  The payments are actually a refundable tax credit for the 2020 tax year. If a person receives a reduced payment based on the 2018 or 2019 adjusted gross income, but their 2020 adjusted gross income is less than what the payment was based on, it is expected that they can claim the balance of the credit when calculating 2020 tax liability. I say that tentatively, as the act is still being interpreted. 

The vast majority of the payments will be made by direct deposit to the banking information on 2018 or 2019 tax returns.  This raises a question about persons who don’t file tax returns. About 1/3 of Social Security beneficiaries don’t file tax returns as they owe no tax and have no refund payable.  The initial direction from the treasury was to ask these persons to file tax returns.  After an outcry from the public and back and forth between various government officials, it was decided that the IRS will use 1099’s from Social Security and other federal benefits to identify persons eligible for payments who do not file tax returns and make the payments by direct deposit or paper checks if banking information is not available.  This will still leave out a small number of people who do not file tax returns or are not listed as dependent on another persons’ tax return, and who do not receive any federal benefits.  The best advice there is for the person to file an informational tax return. Intuit Turbotax has created on free online system for these filings: https://turbotax.intuit.com/stimulus-check/.

For persons on means tested benefits such as Supplemental Security Income, Medicaid, or federal income-based housing assistance, the payments will not count as income in the month received and will not be counted as a resource for 12-months.  Bottom line here for a person in one of these programs is that they need to spend the payment on their needs within a year.   

Frauds and scams are already targeting the stimulus payments, with phone calls asking for personal information such as dates of birth, Social Security numbers, and banking information under the guise of arranging payments. These calls are identity theft and frauds.  For information see the Consumer Financial Protection Bureau:  https://www.consumerfinance.gov/about-us/blog/beware-coronavirus-related-scams/

And Federal Trade Commission:https://www.consumer.ftc.gov/features/coronavirus-scams-what-ftc-doing

    Author

    David M. Godfrey, J.D., is a senior attorney to the ABA Commission on Law and Aging in Washington, D.C. He is responsible for the ABA’s role in the Administration on Aging funded National Center on Law and Elder Rights. Prior to joining the Commission, he was responsible for elder law programming at Access to Justice Foundation in Kentucky. Mr. Godfrey earned his B.A. with honors at Rollins College in Winter Park, Florida, and his J.D. cum laude from the University of Louisville School of Law in Kentucky. He serves on the board of the National Academy of Elder Law Attorneys – and was named a Fellow of the Academy in 2019. He loves to travel and has been to 48 states and 15 countries.