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Expecting a Stimulus check from the IRS? Not so fast!

The IRS will be doling out economic stimulus checks, or "recovery rebates" over the next three weeks, leading many Americans to eagerly check their bank accounts for a much-needed injection of cash. But if you pay child support and are behind on your payments, your expected stimulus check may be reduced or diverted by the government. In addition, if you alternate the child tax credit each year with your ex, you might not receive as much as you expect.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Trump on March 27, 2020. The CARES Act contains a number of tax provisions aimed at helping taxpayers who are suffering through the COVID-19 pandemic. Among these is the distribution of what the IRS is calling “economic impact payments”, more commonly referred to by taxpayers as stimulus checks. These payments can be up to $1200 per taxpayer, and are being sent automatically to taxpayers who meet certain criteria outlined below.

Taxpayers with 2019 adjusted gross income up to $75,000 for individuals ($150,000 for married couples filing joint returns) are eligible to receive the full $1200 per adult. In addition, these people are entitled to $500 for each qualifying child. If you haven’t filed your 2019 return yet, the IRS will look to your 2018 tax return to see if you qualify. So, in theory, if you and your spouse earn under $150,000 and have two kids, you could receive up to $3,400 from the IRS, thanks to the CARES Act.

If your adjusted gross income is higher than those amounts, the IRS will reduce your check by $5 for every $100 above the $75,000 threshold ($150,000 for Married Filing Jointly). If you earn over $99,000, have no children, and file as Single, you won’t be eligible for an economic impact payment. If file a joint return with your spouse, have no children, and earn over $198,000, you also won’t be eligible. If you fall somewhere in between, you’ll be eligible to receive a reduced payment.

Here’s the best part: As long as you filed a tax return in 2018 or 2019, you don’t have to do anything to get a check. The IRS is expected to start distributing payments on April 9 to those who filed electronically and had their refunds direct deposited into their bank accounts. The IRS will use that information to deposit your payment, if eligible. If you received a refund via paper check, you can still provide your banking info to the IRS so that they can get you your money right away. The IRS is developing an online portal for people to provide this information over the next few weeks.

What if you are divorced or alternate claiming your kids on your taxes with someone else? Things get a little more complicated, as this could impact which parent receives the $500 benefit for the alternated child. For example, typically, parents alternate claiming the children by odd and even years. If Mom claimed the child in 2018 and hasn’t filed her 2019 taxes yet, then she should receive $500 from the IRS for that child. However, if Dad claims the child in 2019 and he already filed his 2019 return, then he may also expect to receive $500 for that child. This could create problems.

The IRS is treating these payments as an advance on 2020 tax credits, meaning that any credit you might be entitled to for tax year 2020 (which you wouldn’t normally receive until 2021) will be reduced by the amount of your economic impact payment. Again, this is complicated by the fact that for many families, credits for children are alternated each tax year. If Dad received the benefit of a $500 dependent child rebate as a result of the CARES Act, how will that impact Mom’s 2020 tax credit entitlement when she files in 2021?

What if you owe back child support? Although the government is not applying the majority of its typical administrative tax refund offsets, like past-due student loan payments or tax debts, the CARES Act still enforces offsets for people who owe past-due child support.

However, these delinquent child support payments must have been reported to Department of the Treasury by the states in order for an offset to take effect. Said another way, in New Jersey, if you’re paying child support directly to your ex, the IRS won’t have any way to know that you’re behind on payments. If you pay through Probation, however, your stimulus check may be seized by the government’s Treasury Offset Program.

The Treasury Offset Program enables the IRS to offset certain unpaid debts, like past-due child support, with tax refunds due to the person paying child support. So, if you’re behind on your child support obligation, your expected stimulus check may be diverted to the person to whom you owe past child support. On the bright side, the amount of your arrears will be reduced and your kids will benefit from the extra money.

If you have questions about how your current child support order may affect your ability to obtain the stimulus package, or are looking to modify your child support order, contact our office today at (732) 867-8894.

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