Congress just passed a Stimulus Package that will put money in the pockets of most Americans. I detailed the eligibility for receiving this payment in an earlier article, which can be found by clicking here. This article is designed to help those who are over the threshold, but still have a qualifying child (or children), understand how much of a payment they will receive, if any.
At the outset, it is important to understand two things:
- The standard payment is $1,200 for an individual or $2,400 for a couple; and,
- You receive $500 for each qualifying child.
Next, you need to understand the threshold limits. These limits are:
- $75,000 for an individual;
- $112,500 for head of household; and,
- $150,000 for married filing jointly.
Finally, any money made in excess of the threshold will decrease your payment. Specifically, your payment will decrease by 5% (.05) for all money made over the threshold (i.e. $5 for every $100 over the threshold).
Individuals and Couples Without Children
Taxpayers without children with income above $99,000 (individual), $136,500 (head of household), and $198,000 (joint) will be phased out completely. If you are in between the threshold and the phase-out, you have to do the math.
- i.e. If you are married, filing jointly, and your AGI was $160,000, the amount you are over the threshold is $10,000.
- $10,000 excess * 5% ($10,000 * .05) = $500
- The resulting $500 is what will be deducted from your payment. So, instead of receiving $2,400, you would receive $1,900 ($2,400 – $500).
Couples With Children
For taxpayers with qualifying children, the phase-out amount changes depending on how many children you have. For example, while a married couple without children would receive nothing if they made $198,000, a married couple with 2 children would still receive a $1,000 payment. It is important to understand that this is not ONLY because they have two children, it is because that’s what the math works out to be.
- In the example above, the stimulus payment would be $3,400 ($2,400 for married filing jointly, and $500 for each child). Now that we figured out the payment, let’s figure out the deduction for being over the threshold. $198,000 (income) – $150,000 (threshold) = $48,000 over the threshold. $48,000 * 5% = $2,400. $3,400 (total payment) – $2,400 (deduction) = $1,000.
In summary, here are the steps to find out what you will receive:
- Determine your total possible payment
- Determine your payment amount ($1,200 if single, $2,400 if joint);
- Determine the amount for your children ($500 for each qualifying child);
- Add a and b together.
- This is your total possible payment.
- Determine the amount your payment will be reduced
- Determine your tax category (individual, head of household, or joint);
- Determine your income;
- Subtract the threshold number from your income (this is the overage);
- Multiple the overage by 5%.
- Subtract the amount your payment will be reduced from you total possible payment. If the number is negative or 0, you will not receive a payment.
Example: Jane filed jointly and has 3 children. Jane’s Adjusted Gross Income was $210,000. Jane will receive a $900 payment. Here is how:
- $3,900 total possible payment ($2,400 payment + $1,500 for children);
- Tax threshold $150,000 (joint);
- $210,000 (income)
- $210,000 (income) – $150,000 (threshold) = $60,000;
- $60,000 * 5% (.05) = $3,000.
- $900 total payment
- $3,900 – $3,000 = $900.
Hopefully this helps you navigate how the Stimulus Package applies to you. Please visit our Grewal Law website for more information, and follow our continued articles to find out how it will apply to your business.
Daniel Barnett is an associate attorney with Grewal Law PLLC. His practice areas include commercial litigation, general civil litigation, family law, criminal law, and, personal injury.