How Stimulus Checks May Affect Assignees & What You Can Do

4.7.2020 | To help many Americans financially weather the COVID-19 pandemic, the IRS will issue stimulus payments to qualifying taxpayers. However, due to adjusted gross income (AGI) phase-outs placed on these checks, assignees may receive a reduced payment or no payment at all. Here’s why and what you can do.

Stimulus Check Overview

Payment is based on the taxpayer’s most recent tax return (2019 or 2018) and here’s how it works:

  • A single taxpayer will be eligible to receive a $1,200 payment for gross income up to $75,000.
  • Taxpayers married filing jointly, with $150,000 or less gross income, will be eligible to receive $2,400.
  • For taxpayers with income exceeding the threshold, they may be eligible for a partial payment; payment is reduced by $5 for every $100 of gross income that exceeds the threshold.
  • Those with dependent children (under the age of 17) would be eligible for an additional $500 per child.
  • For those without eligible children, the payments completely phase out once gross income reaches $99,000 if single and $198,000 if married filing jointly.

Relocation Considerations

For employees who received additional taxable income due to a relocation, the income will factor into their gross income; there will be no adaptations for assignees. However, because the stimulus checks are considered advanced payments, some assignees may receive a credit on their 2020 tax filings.

For example, let’s say an assignee’s 2019 (or 2018) income exceeded the stimulus threshold, but the following filing year, they are within the threshold. In this instance, the assignee will receive a tax credit – on their 2020 tax filing – that is equal to the stimulus amount they would have received if they had qualified on their 2019 (or 2018) filing.

Recommendations

  • Be proactive and share this information with all assignees. While some employees may have already inquired about stimulus check implications, some may not consider the potential ramifications. Remember: Less surprises = less issues.
  • Consider how your company has handled similar situations. For example, do you gross-up? If so, your employees are likely to expect some level of compensation for their loss of stimulus funds.
  • If there’s a question, don’t hesitate to audit. You’ll need to see the actual returns to determine if the relocation caused a reduction in payment or if it was phased out for other reasons. As mentioned, some assignees may be eligible for a 2020 tax credit, so run what-if situations, too. The best tax decisions are based on data.

Please note:

  • Orion will be addressing this and other COVID-related tax issues in an upcoming webinar; stay tuned.
  • We are offering free tax consultations during this time. Have a question? Don’t hesitate to contact us.

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