With Special Emphasis on How the Act Applies to Divorced and Never-Married Parents
On March 27, 2020 the House passed and the President signed into law the CARES Act intended to provide economic and financial relief to American families and businesses impacted by the COVID-19 Pandemic. A key component of the Act will be the almost immediate payment of income tax credits that will be available to Americans who have a social security number or adoption identification number, for children in the adoption process.
All US citizens and residents (who are not claimed as a dependent on another’s return and not estates or trusts) will be entitled to a maximum payment of $1,200 per adult and $500 per child. For the adults, joint filers will be entitled to a maximum of $2,400. Taxpayers and federal benefits recipients with incomes up to $75,000 per person, $112,500 for a head of household and $150,000 per couple, will get the full payment. The reduction is $.05 per dollar of income over these amounts. That means the payment phases out at $24,000 of additional income per adult person and $10,000 of additional income per child.
Payments for children will be based upon who claimed the child on their 2019 income tax return. For parents who have not yet filed for 2019, the payment for the child will be based upon which parent claimed the child on their 2018 income tax return. For eligible persons who have not filed tax returns the past two years, or received social security retirement or disability income or railroad retirement income, payments are still available if a 2018 or 2019 return is filed before the end of 2020. There are link to free “file online” forms at www.irs.gov. People with no income, or less than the threshold required to file, should file to get this payment and, perhaps, additional money due to earned income tax credits and other provisions of federal law.
Reports suggest that only past due child support will be offset against these payments, and that other garnishment, back taxes, and other processes that might have reduced refunds will not be applied to the CARES Act payments.
A single parent who earns $30,000 per year, and has one child claimed on her 2019 return, should receive a $1,700 payment – which is $1,200 for herself and $500 for her child in addition to the refund shown due on her return. Tools to calculate your payment are available at various sources including washingtonpost.com.
For parents who filed jointly for 2018, were divorced by 2019 and neither has yet filed their 2019 returns, the law provides that the tax credit will be applied and sent electronically to the account identified on the 2018 return. If that account is no longer open, a jointly payable refund check will be sent to the address on the tax return. This does not mean the recipient is entitled to keep the joint payment. Each adult is expressly entitled to their own payment. Therefore, even if your divorce judgment does not have an express clause requiring disgorgement of money received for the other (often called constructive trust). Within 15 days after the payment is made, a notice must be mailed to the last known address stating when and how the payment was made. If you are concerned that a former spouse will not share a payment, and you are no longer at the address listed on the return, a temporary change of address notice may be completed on line at usps.com so the notice directed to you will be forwarded to your current address.
Unfortunately, there is no similar common law governing whether the recipient parent is entitled to keep all of the payment related to a child. Since the payment is for the benefit of the child, attorneys should be proactive and advocate for it to be equitably divided, perhaps divided equally, or in the same ratio as uninsured medical expenses, or the inverse of that, so the lower income parent gets the higher percentage of the payment.
The manner in which this new law allows for the application of tax credits, particularly for children, may lead to conflict. Judges may soon be called upon to sort out the allocation of these tax credits when the intention of the new law does not necessarily end with an equitable result. Given the relatively small amount at issue, efforts to resolve and cooperate will be in the best interest of children and families.