Stimulus Checks For Those Earning More Than $75,000/$150,000 – How It Works

The Economic Impact Payments, or stimulus checks as they’ve come to be known as, were one of the most hotly debated aspects of the COVID-19 relief package Congress agreed to earlier this week.

When the CARES Act was passed back in March, qualifying individuals received $1,200 checks. That amount is down to $600 under the new Coronavirus Response and Relief Supplemental Appropriations Act. Numerous public officials have expressed their disappointment with the considerably lower amount of direct relief that will find its way into Americans’ hands.

Regardless, the money is coming and many potential recipients are confused as to whether or not they will receive it. Unfortunately, these rules are fairly complicated. Hopefully you won’t need to call a tax lawyer to figure this out, but if you do, this is what they would tell you:

First, it is important to understand how the payments are calculated. It is all based upon an individual’s adjusted gross income. Your adjusted gross income is the sum of all the money you earn in a year, including wages, dividends, alimony, capital gains, interest income, royalties, rental income and retirement distributions minus any deductions that are specifically noted in Internal Revenue Code Section 62 which are as follows: trade and business deductions, reimbursed employee expenses, performing artist expenses, certain government official expenses, educator expenses, certain expenses for members of the armed forces, losses from the sale or exchange of property, deductions attributable to rents and royalties, deductions for life tenants and income beneficiaries of property, pension, profit sharing, and annuity plans of self-employed individuals, retirement savings, reforestation expenses, repayments of unemployment compensation, moving expenses, Archer MSAs, student loan interest, HSAs, certain attorneys fees, and charitable contributions. It should also be noted that borrowed monies should not be included in your income for the purpose of calculating adjusted gross income, even PPP loans.

At this point it should be said that you are not expected to do anything to qualify to receive this payment. In all likelihood the IRS will simply look at your 2019 tax return, determine your adjusted gross income, determine how many dependent children you claimed, and compensate you accordingly. Should you wish to check your adjusted gross income, you can find it on IRS Form 1040–Line 8b. For those who are curious as to how these payment amounts are determined and how it will apply to you, the analysis below should provide some clarity.

Individuals with an AGI of less than $75,000 and married couples filing jointly with a combined AGI of less than $150,000 will be eligible to receive the entire $600. However, that amount begins to “phase out” for individuals and couples with adjusted gross incomes greater than $75,000/$150,000 respectively.

Single filers with an AGI of more than $75,000 and jointly filing couples with a combined AGI of more than $150,000 will have their payments reduced at a rate of $5 for every $100 of additional income above $75,000 according to Congress.

Regarding qualifying dependents, an individual who claims a dependent child age 17 and under will be eligible to receive an additional $600 for that child. Further, there does not appear to be a cap on the number of qualifying dependents an individual can receive payment for under the Act. It should be said, however, that two parents filing separately cannot receive double payments by each claiming the same child as a dependent.

Interestingly, it appears that any and all filers with a dependent child aged 17 and under will receive the full $600 payment per dependent child. Having had children under the age of 17, I fully endorse these well deserved payments.

One might expect that any payment for a qualifying child would be reduced by the same ratio that a “phased out” individual’s payment was reduced by. However, there does not appear to be any language in the Act that prohibits those who have “phased out” from still receiving $600 payments for dependent children or receiving reduced amounts.

If you are a single filer and have an adjusted gross income greater than $75,000 you can determine your exact payment amount by performing the following calculation:

Check amount = $600 – (((AGI – 75,000)/100)*5)

The same rules will apply to married couples filing jointly, only they will receive $1,200 and the AGI threshold before the credit begins to phase out is set at $150,000.

If you are a married couple filing jointly and have an adjusted gross income greater than $150,000 you can determine your exact payment amount by performing the following calculation:

Check amount = $1,200 – (((AGI – 150,000)/100)*5)

For those who truly enjoy torturing themselves the exact language of the relevant provision of the Act is below for you’re reading pleasure and can be found beginning on page 1966 of the Act:

“SEC. 6428A. ADDITIONAL 2020 RECOVERY REBATES FOR INDIVIDUALS.

(a) IN GENERAL.—In addition to the credit allowed under section 6428, in the case of an eligible individual, there shall be allowed as a credit against the tax imposed by subtitle A for the first taxable year beginning in 2020 an amount equal to the sum of—

(1) $600 ( $1,200 in the case of eligible individuals filing a joint return), plus

(2) an amount equal to the product of $600 multiplied by the number of qualifying children (within the meaning of section 24(c)) of the taxpayer.

. . .

(c) LIMITATION BASED ON ADJUSTED GROSS INCOME.—The amount of the credit allowed by subsection (a) (determined without regard to this subsection and subsection (e)) shall be reduced (but not below zero) by 5 percent of so much of the taxpayer’s adjusted gross income as exceeds—

(1) $150,000 in the case of a joint return or a surviving spouse (as defined in section 2(a)),

(2) $112,500 in the case of a head of household (as defined in section 2(b)), and

(3) $75,000 in the case of a taxpayer not described in paragraph (1) or (2).

(d) ELIGIBLE INDIVIDUAL.—For purposes of this section, the term ‘eligible individual’ means any individual other than—

(1) any nonresident alien individual,

(2) any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, and

(3) an estate or trust.”

These economic impact payments should be a welcome boost for many millions of Americans.

To learn more about the small business side of the Stimulus Package, read my recent post titled PPP and EIDL Loan Advances And Changes Under New Act.

We hope that this article has provided some clarity regarding the amount you should expect to receive.