You may need to repay your Recovery Rebate
We hope you are well and that you are staying safe.
One of the major components of the CARES Act enacted last week was the Recovery Rebates that were made available if you met certain thresholds.
To recap, the recovery rebates are equal to $1,200 for individuals, or $2,400 for joint filers, with a $500 credit for each child and the threshold amounts are based upon your 2018 adjusted gross income (unless a 2019 return has already been filed), and the phaseouts begin at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. The rebates are completely phased out for single filers with 2018 (or 2019, if applicable) adjusted gross income over $99,000, heads of household with $136,500, and joint filers with $198,000.
However, the Recovery Rebates are just an advance of a refundable tax credit on your 2020 taxes.
In other words, the CARES Act created a refundable tax credit and the Internal Revenue Service is paying out the amount of that tax credit to eligible taxpayers now. Since the IRS does not have your 2020 tax year information, it will use your 2018 (or 2019) tax year information to calculate the amount.
When you file your return for 2020 (sometime in 2021), if the IRS gave you too much of a recovery rebate, you could be asked to pay back the difference. Fortunately, you will not be assessed interest on the over-payment amount. If the IRS pays you too little, you will get the difference added to your tax refund.
We hope you found the above helpful. And again, we are available if you have questions, concerns or need assistance.
Please stay safe and healthy!