How Would A Second Round Of COVID-19 Rebates Affect Households?

It may be months before a vaccine against the COVID-19 virus is available to everyone. But it may be just a month or so before most people get their prescription renewed for a second round of recovery rebates. Well, that’s assuming that Republicans and Democrats can iron out their differences on unemployment insurance, aid to states and localities, increased business deductions for three-martini lunches, among other contentious issues.

Most likely, those second round of payments will have the same basic structure as the recovery rebates (rebranded last spring as the economic impact payments) authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act: up to $1,200 for a single person and as much as $2,400 for a married couple. And people probably will still be eligible for the full rebate if their income is below $75,000 (or $150,000 if married), with the amounts gradually phasing out as income rises above those thresholds.

But average payments to recipients could be higher than under the CARES Act: $60 more if the rebates in this week’s Senate Republican bill—the Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act—are enacted or $410 more if the final bill instead includes the rebates from the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, which was passed by the House in May.

Why the increase? Lawmakers in both houses heard the complaints of parents of college students and disabled adults. Under both the Senate Republican bill and the House bill, the additional $500 payment for qualifying children under the age of 17 would be made available to all dependents. The House bill also increased that $500 payment to $1,200 per dependent, though limiting the additional payments to three dependents per household.

Under both bills, over 90 percent of households would receive the second round of payments. On average, those payments would be $1,840 under the HEALS Act and $2,190 under the HEROES Act.           

In combination, the two rounds of rebates would increase after-tax income by several thousand dollars. For example, the combined rebates in the CARES Act and the Senate Republican bill would increase after-tax household income for recipients, by, on average, $3,620 (the average amount would be $3,370 for all households). That’s roughly the same amount that a single mom with one child who earns the minimum wage gets from the earned income tax credit this year.

Another feature? The two rounds of rebates would eliminate the federal income taxes owed by millions of households on income earned in 2020 and increase the share of households paying no income taxes to well above 50 percent.  

A big caveat to TPC’s analysis of the CARES Act and the current House and Senate Republican plans: We assume that everyone who is eligible for the rebates gets those payments. Michael Karpman, a researcher in the Urban Institute’s Health Policy Center, and I found that 30 percent of adults between the ages of 18 and 64 didn’t report receipt of the economic impact payments by the second half of May. Most were probably eligible, but various barriers—such as not having access to the internet for on-line applications or the lack of bank accounts for direct deposits of the payments—slowed or prevented receipt.

Another caveat: TPC’s analysis is based on 2019 income and thus excludes two groups of households that might be eligible for one or both rebates. One group includes people who—based on their 2019 income tax returns—aren’t eligible for advance payments but whose income falls enough this year to allow them to claim the rebate when they file their 2020 income tax returns next year. Also missing are people who would receive advance payments of the rebates based on their 2018 tax return because their 2019 tax return was not processed at the time the IRS determined the amount but who would not have qualified based on their income in 2019.

Despite those caveats, one thing is clear from our analysis: Most taxpayers would receive a substantial reduction in their 2020 taxes if a second round of rebates is passed. And if a vaccine for COVID-19 is available by next spring, we will be very fortunate indeed—even if many people face higher income tax bills for 2021 when the prescription for recovery rebates expires.

https://www.taxpolicycenter.org/taxvox/how-would-second-round-covid-19-rebates-affect-households