What You Need to Know About Your Federal Government Audit [updated]
After much debate, the Senate passed legislation that would send aid checks to most Americans. The checks are part of a $ 2 trillion aid package aimed at supporting the economy during the coronavirus pandemic.
Checks will cost up to $ 1,200 for an adult and up to $ 2,400 for a married couple. Families will also receive $ 500 per child. To receive a check, you must have a Social Security number.
The amount you receive depends on your adjusted gross income (line 8b of Form 1040 for 2019 or line 7 of Form 1040 for 2018). If your AGI is over $ 75,000 per year (or $ 150,000 per pair), you will receive less than $ 1,200. The phase-out system will bring your payments down to zero once you hit AGI around $ 99,000 per person (or $ 198,000 per couple).
Forbes employee Kelly Phillips Erb explains the phase-out as follows:
For every $ 100 of income above these thresholds, your check will decline $ 5. So, if you are an individual applicant and make $ 75,100, your check would be $ 1,195 ($ 1,200 to $ 5). If you are an individual applicant and make $ 85,000, your check will be $ 700 ($ 1,200 to $ 500).
The amount you receive will be based on the adjusted gross income on your 2018 tax return. If you have already applied for 2019, your amount will be based on your 2019 adjusted gross income. If you have account information (for example, from your last tax refund payment), you will receive funds via direct deposit. Otherwise, you will receive a check in the mail.
The House of Representatives is expected to vote and pass the bill on Friday. From there, it must be signed by President Trump before the check can be printed and sent.
How to use the recovery bonus
Obviously, these payments are primarily used to help people make ends meet more easily at uncertain times when many people are unemployed. Once you have bills to pay, deciding how to use the check to pay your benefits is easy.
But if you’re still getting paid regularly, you might wonder what to do with the money.
“One warning for those who might find this money ‘funny,’” said Bobby Rebell, CFP and personal finance expert at Tally . “This is money that, if not immediately needed, should be added to your emergency fund and used only in emergencies. Now is not the time to use it as a trifle or a treat. “
While you can be confident about your finances now, in reality, your situation can change at any time. Setting up an emergency fund or paying rent ahead of time can give you a solid foundation to get through the months ahead more confidently.
“If you don’t need these subsidies for direct living expenses, it’s considered a stroke of luck,” said Eric Bronnenkant, CFP and head of tax office Betterment. “The problem with super profits of $ 1,000 or more is that we are often not psychologically prepared for them.” He explained that we view windfall profits as a bonus and that we have an instinct to spend our “free” money. This is why it is so important to have a plan to test your incentives before you even receive them. “Don’t be tempted to waste it on unnecessary things,” Bronnekant said.
If you already have a healthy emergency fund, Bronnenkant recommends paying off the debt at high interest rates, such as a credit card. You can also use your incentive check to increase your retirement contribution or save for an important goal like saving your child in college.
How Your Discount Check Affects Your Taxes in 2020
Your check is essentially a refundable tax credit advance. This means that if you get less discount than you should be based on tax income (say, because you lose income for part of the year due to coronavirus), you will get the difference applied to your tax return. for 2020, the Tax Fund explained.
If you get more than you should have (say, you had a steady income in 2020 and you actually got a raise), you don’t have to refund your discounted check.
The last time taxpayers received the rebate was in 2008, when George W. Bush signed the Economic Incentive Act that same year. Individuals received between $ 300 and $ 600 based on their income in the previous year, with checks arriving about three months after they were announced.
But those efforts didn’t quite boost the economy as Bush had hoped: Researchers later found that most recipients either kept their rebate or used it to pay off debt.
This article was updated the same day it was published to clarify that benefits checks are based on a person’s adjusted gross income, not their salary. It has also been updated to correct a typo in the phase-out calculations and add the AGI 2018 line for Form 1040.