Collage including U.S. Capitol and stimulus bill cash.

Coronavirus & CARES Act Stimulus Payments

As you may have heard, the world is dealing with a bit of a health crisis lately. The Covid-19 pandemic has resulted in people all over the world being ordered to stay at home, businesses ordered shut; heck, in some places you cannot even even go for a walk on the beach. Closer to home, the pandemic has affected family law proceedings, even resulted in a temporary suspension of divorce cases (mind you, Covid-19 has caused Colorado to shift to remote proceedings, but not actually ban divorces).

At least in the United States, Congress has tried to keep people’s livelihoods afloat with the CARES Act (short for Coronavirus Aid, Relief, and Economic Security Act). The bill, typical of Congress, is a behemoth, and includes provisions allowing for payments to individual taxpayers, loans for affected businesses, and probably a fair amount of “pork” as well.

Eligibility for CARES Act Rebate

For individuals, the CARES Act will in most cases mean that you receive a stimulus payment. With two exceptions, everyone who is not already someone else’s dependent, will receive a starting rebate of $1,200 per adult, and $500 per child. The exceptions are:

  • High Income. The rebate amount will be less if you make more than $75,000 as an individual, or $150,000 as a married couple. Once you make more than those amounts, your rebate amount will be decreased by $50 for every $1000 you make over the threshold.
  • Married to Immigrant. The CARES Act stimulus payment is only available when both spouses have social security numbers – in other words, a U.S. citizen married to an undocumented immigrant is not entitled to a payment, an exception that is the subject of controversy and lawsuits.

Also, you will receive a stimulus payment for children: $500 for each child, but the child bonus is not absolute. Even the child bonus is subject to reduction for high earners. For example, let’s say you make as a single filer $120,000/year. You would not be eligible for a rebate without children. In fact, you would need to have three children to get anything, and even then it would only be $450 because of the formula.

Technically, the CARES Act rebates are credits based on 2020 taxes. However, as people need money now, the government will use the last taxes you filed to calculate your rebate. So, if you’ve already filed your 2019 taxes, those are the numbers they’ll use to determine the stimulus payment. On the other hand, given that tax day has been moved to July 15, if you haven’t filed your 2019 taxes yet, the 2018 taxes will be used instead. Once your 2019 taxes have been filed, a reconciliation may be in order.

Divorced Parents & CARES Act Stimulus Payments

Children cannot be claimed as a dependent by both parents who no longer file jointly. Most divorced parents split the tax benefits associated with their children. C.R.S. 14-10-115(12) provides that children’s tax exemptions are divided proportional to the parents’ incomes – typically that means alternating them or allocating them in some manner – either equally (each claim one child each year), or one parent claims two children and the other claims one.

CARES Act Stimulus Payments

Being divorced will not affect your CARES Act rebate with regards to the income portion of the formula. If you have been divorced for a few years and have reverted to filing individually, or if you are remarried and filing jointly with a new spouse, nothing will change. However, the child bonus will potentially be different depending on how your divorces agreement is written.

The child bonus will be received only by the parent who claimed the child on the tax return at issue. So if you are divorced and 2019 was the year your ex claims the kid, unfortunately you are out of luck.

Problems Using Prior Tax Years to Determine 2020 Stimulus Payment

There is a potential issue for those parents who alternate tax credit years. For instance, suppose Parent A gets the child tax credit in 2018, and Parent B gets it in 2019. Parent B has already filed 2019 taxes with the credit, but Parent A, taking advantage of the filing extension, has not yet filed. Parent A’s credit should be calculated off of 2018 taxes, the last year filed, but Parent B’s credit would be off the 2019 taxes. So, who gets the CARES Act stimulus payment, especially considering that the credit is technically for 2020?

This question seems unresolved. John Moran, C.P.A., of Moran & Long, states that the IRS typically issues Notices of guidance to address these finer points. “I imagine that the IRS will probably issue something on this in the coming month, but as far as I know, they haven’t yet,” said Moran. 

Given the speed at which Coronavirus struck the country, and the speed at which Congress crafted the emergency CARES Act legislation, it is unsurprising that there are holes to fill. The IRS may yet do that. But given that stimulus payment checks are already on the way, it’s possible that the only way that this will be addressed, is by the normal means of reconciliations for any other tax issue. That is to say, “we’ll find out more when we file the 2020 taxes.”

If you find yourself in the position of missing out on the bonus because of one of the above issues, there is not much you can do about it at this point. Hopefully, the IRS issues guidance, and the rightful holder of the 2020 child tax credit can seek to be reimbursed from the other parent. If that doesn’t happen, I can’t recommend litigation. There’s no way anyone will be able to litigate the bonus for less than what the bonus is worth.

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