A draft of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, circulated on Sunday, March 22, 2020, includes many provisions designed to stimulate the economy in response to the effects of the COVID-19 pandemic. One such provision of the March 22 draft is the "2020 recovery rebate," a direct payment made to individuals. Similar "recovery rebates" were sent to individuals in response to the 2001 and 2008 recessions. Several Members of Congress have recently proposed varying forms of direct payment, and an earlier version of the CARES Act (introduced as S. 3548) includes a direct payment proposal. The direct payment proposed in the March 22 draft is structured similarly to the 2008 recovery rebates. The rebate takes the form of an advance refundable tax credit and would rely on the tax system to pay the credit to eligible individuals. As such, this Insight refers to eligible individuals as "taxpayers."

In general, taxpayers would be eligible for a rebate of $1,200 ($2,400 if the taxpayer is a married couple filing jointly). Taxpayers could increase the amount they receive by $500 for each child that they could claim for the child tax credit. The rebate amount would gradually phase out for higher-income taxpayers. The March 22 draft includes other provisions related to the timing of rebate payments, the information used to determine the rebate amount, and administrative challenges related to paying the rebate.

How Much Would Family Incomes Increase Due to the March 22 CARES Act Proposed Direct Payment?

Policymakers may consider the extent to which a direct payment could increase family income. To estimate the potential impact of the 2020 recovery rebates, CRS calculated the amount families would receive under the proposal in the March 22 CARES Act. CRS then compared the estimated rebate a family would receive to their estimated monthly income. Table 1 presents families' median estimated monthly income and the median percentage of monthly income that families would receive as a rebate. These estimates are broken down by the ratio of family income to the poverty threshold to show the impacts of the 2020 rebate across the income distribution.

Table 1 estimates that the median family living in poverty would receive a rebate that amounts to 182% of the amount of the family's monthly income. The median refers to the midpoint of the distribution—50% of families in poverty would receive a rebate that is less than 182% of their estimated monthly income, and 50% of families in poverty would receive a rebate that is greater than 182%. The median family living near poverty (100%-199%) would receive a rebate equal to 92% of their estimated monthly income.

Table 1. Estimated Median % of Monthly Income Families Would Receive as a 2020 Recovery Rebate Under the March 22 CARES Act

Ratio of family income to poverty

Median estimated monthly income (before rebate)

Median percentage of estimated monthly income families would receive as a rebate

Less than 100% (below poverty)

$850

182%

100%-199%

$2,100

92%

200%-299%

$3,570

56%

300%-399%

$4,930

41%

400%-499%

$6,240

31%

500% or greater

$10,440

4%

Total

$3,600

57%

Source: CRS calculations via the TRIM3 microsimulation model using 2016 data.

Notes: Median estimated monthly income rounded to the nearest 10. Estimated monthly income was calculated by dividing families' annual income by 12. Income reported in this analysis reflects the Supplemental Poverty Measure (SPM) definition of income and includes a family's after-tax wage income, self-employment income, the value of refundable tax credits, Social Security, Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), assisted housing benefits, childcare subsidies, and more. SPM poverty thresholds were used to calculate the ratios of family income to poverty.

Policymakers may also consider the extent to which the phaseout provision of the recovery rebates would limit benefits received by higher-income families. The March 22 draft phases out the rebate paid to a taxpayer by 5% of the taxpayer's adjusted gross income (AGI) that exceeds $75,000 ($112,500 for taxpayers filing as a head of household and $150,000 for married taxpayers filing jointly). Table 2 illustrates how the phaseout would affect rebate amounts for taxpayers in different parts of the income distribution. Specifically, taxpayers are categorized as (1) receiving a rebate that is not impacted by the phaseout, (2) receiving a rebate that is partially reduced by the phaseout, or (3) not receiving a rebate, as the rebate amount is fully reduced to $0. The estimates in Table 2 show that 82% of families would not be impacted by the phaseout and would receive the full rebate. Almost no families with incomes below 300% of poverty would have their rebate partially or fully reduced by the phaseout.

Table 2. Estimated Phaseout Status of Families Eligible for a 2020 Recovery Rebate Under the March 22 CARES Act

Ratio of family income to poverty

Percentage of all families

Family is not impacted by phaseout

Family receives partial credit due to phaseout

Family receives no credit due to phaseout

Less than 100% (below poverty)

15%

100%

0%

0%

100%-199%

27%

100%

0%

0%

200%-299%

19%

98%

2%

0%

300%-399%

14%

87%

12%

1%

400%-499%

8%

65%

29%

6%

500% or greater

16%

24%

31%

46%

Total

100%

82%

10%

8%

Source: CRS calculations via the TRIM3 microsimulation model using 2016 data.

Notes: Totals may not sum due to rounding. Supplemental Poverty Measure (SPM) poverty thresholds and the SPM definition of income were used to calculate the ratios of family income to poverty.

Assumptions and limitations

These estimates should be considered with a number of assumptions and limitations in mind, including the following: