The coronavirus pandemic continues to spread across the globe, and it's having a huge effect on people's lives. In addition to health concerns, the COVID-19 outbreak has led many government officials to declare states of emergency and take steps to keep people from gathering -- even if it means telling millions of employees to stay home from work.
After a painfully long process of negotiation, it now appears that lawmakers in Congress have come to agreement about how they hope to help Americans struggling to make ends meet. The Senate voted 96-0 Wednesday night on a bill that would send most adults $1,200 in the form of a coronavirus check. Yet many people are skeptical about financial relief and worry that there could be a hidden catch involved in accepting that payment. The IRS is a popular villain, and one often-expressed concern is whether people will have to pay taxes on their $1,200.
Based on the current language about the coronavirus checks, it looks like the answer is no. Here's why you probably won't have to pay taxes on what you get from the government.
What the Senate voted on
Under the bill passed unanimously by the Senate, most Americans will receive coronavirus checks. Adults will typically get $1,200 per person, and families with children will get an additional $500 per child.
The reason that some people won't get coronavirus checks is that the bill imposes income limits on eligibility. Single filers with adjusted gross income less than $75,000 and joint filers with income less than $150,000 will receive their checks in full. Above those levels, taxpayers will lose $5 of their coronavirus checks for every $100 in additional earnings they have. Depending on the size of your family, that means you could end up with no check at all if you make as little as $99,000 for singles or $198,000 for joint filers.
Why your coronavirus check won't get taxed
Before the final bill language was available, there was some uncertainty about several aspects of the coronavirus stimulus package and how people would receive money. The version of the bill that the Senate passed calls the financial assistance "2020 recovery rebates" and structures them as a tax credit. The coronavirus checks that people will receive will technically be an advance refund of that recovery rebate credit.
Because of that structure, the coronavirus check won't be considered taxable income. Instead, it'll simply reflect an adjustment to the amount of income tax you otherwise would've owed. At the same time, because the tax credit is refundable, it won't matter if you have tax liability or not -- you'll still be able to claim it.
Moreover, it appears that the federal government will be lenient in the way that it interprets the law. For instance, the initial determination of whether you'll be eligible to get a coronavirus check will likely come from your 2018 or 2019 tax return, because the Treasury wants to get checks out as quickly as possible. Technically, eligibility for the credit depends on your income on your 2020 tax return. However, details in the bill give the IRS the latitude to look the other way for those who get checks but have higher 2020 income that would otherwise leave them ineligible. It's therefore likely that if your income meets the threshold either in previous years or this year, you'll eventually get your $1,200.
What to expect next
Again, the Senate-passed bill still has to go through the House of Representatives and get signed into law by President Trump. However, the White House celebrated the Senate passage of the bill, and House leaders in both parties have urged members to support the bill when they vote Friday.
Lawmakers have expressed the desire to get money into the hands of Americans as quickly as possible, and they don't seem interested in any hidden traps. Barring some unexpectedly draconian last-minute change to the legislation, you shouldn't have to worry about taxes on your coronavirus check when it comes.
The $16,728 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.