MONEY TALKS – The vast majority of Americans have been sheltering in place for several weeks in an attempt to slow the spread of the deadly Coronavirus. While there has been mounting evidence to suggest the spread of the virus has been slowing, one unintended consequence of shutting down businesses and sheltering in place is that millions of Americans are now unemployed. In an attempt to stimulate the U.S. economy, the government recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As part of the Act, over 90% of Americans can expect to receive an economic stimulus check in the near future. Unfortunately, as with many political policies, there are sometimes more questions than answers. Here is our attempt to answer some of the more basic, yet critically important, questions surrounding the economic stimulus checks.
When Will My Check Arrive? - The timing of when you will receive your economic stimulus check will depend greatly upon the information that you have furnished to the Internal Revenue Service (IRS). Taxpayers who filed their 2018 or 2019 tax returns and provided their bank account information, to either make a payment or receive a refund, will start receiving their stimulus checks as early as next week. Likewise, taxpayers who are collecting Social Security payments via direct deposit, but are not required to file a tax return and did not file a return for 2018 or 2019, will also begin receiving their checks next week. In both cases the funds will be directly deposited into the accounts provided.
For those taxpayers who have not provided their bank account information, the IRS will begin mailing paper checks in late April or early May. The timing of when these paper checks will be mailed is dependent upon your income level. For example, taxpayers with adjusted gross income below $60,000 should expect their checks by the end of May, whereas taxpayers with incomes north of $200,000 shouldn’t expect their checks until September. If you, like many Americans, could use the money sooner than later; it’s not too late to provide your bank account information to the IRS. Taxpayers who have not yet filed their 2019 returns should file ASAP and be sure to include their direct deposit information on their return. For those not required to file taxes, Intuit, the parent company of TurboTax, has teamed up with the IRS to provide a website where taxpayers can enter their direct deposit information.
How Much Will I Receive? - The size of your economic stimulus check is dependent upon three factors; tax filing status, adjusted gross income, and the number of qualifying children under age 17. If you have already filed your 2019 tax return, the IRS is going to use that information to determine how much you will receive. If you have yet to file your 2019 tax return, the IRS will use your 2018 information.
Depending upon your specific situation, it may be advantageous to wait to receive your stimulus check before filing your return. For example, if you made less money in 2018 than 2019, it may be advantageous to wait for your stimulus check before filing. Conversely, if you made less in 2019, it may make sense to file your tax return early (due date has been automatically extended to July 15, 2020).
Single tax filers with adjusted gross income up to $75,000 will receive the full $1,200 stimulus payment. For single filers with income above $75,000, the payment amount is reduced by $5 for each $100 above the threshold. Single filers with no children and income exceeding $99,000 are not eligible. Additionally, regardless of income level, single filers are eligible for $500 per qualifying child under age 17.
Married couples filing joint returns (MFJ) with adjusted gross income up to $150,000 will receive the full $2,400 stimulus payment. For MFJ filers with income above $150,000, the payment amount is reduced by $5 for each $100 above the threshold. MFJ filers with no children and income exceeding $198,000 are not eligible. Additionally, regardless of income level, MFJ filers are eligible for $500 per qualifying child under age 17.
Interestingly enough, the stimulus checks are technically classified as a 2020 refundable tax credit. This means that the government is going to reevaluate how much you received and recalculate that number once you file your 2020 tax return. This could be a windfall for taxpayers who had high incomes in 2018 or 2019 but were less prosperous in 2020. If you were fortunate enough to make more in 2020 than in prior years, you need not worry, the government has no plans to claw back any money that has already been doled out via stimulus check.
If you are curious as to how much you can expect to receive, or if you are better off filing or not filing your 2019 tax return, there is a simple online calculator that will calculate your payment in a matter of seconds. If you have not yet filed your 2019 tax return, you can find your AGI listed on Line 7 of your 2018 tax return. If you have filed your 2019 tax return, you can find your AGI listed on Line 8b of your 2019 tax return.
What Should I Do With The Money? - The loss in income due to the Coronavirus pandemic has left many Americans struggling to pay their bills, most notably their rent or mortgage payments. Fortunately, moratoriums are in place throughout the country to stop evictions and foreclosures. Before sending your stimulus check to your landlord or bank, reach out and speak with them to find out what programs are in place for those experiencing hardships. This may allow you to keep some or all of your stimulus check to pay for other household essentials like food and medication. However, it’s important to keep in mind that just because your rent or mortgage payment has been deferred, does not mean that it has been forgiven. Spend your money wisely and, whenever possible, pad your cash reserve for future needs. It’s nearly impossible to predict how long this pandemic is going to adversely affect the economy, so now more than ever is a good time to either start a cash reserve or pad your existing reserve for a rainy day.
For those individuals with an ample cash reserve (20% - 30% of gross income) who have a long-term investment horizon, this could be a great opportunity to use your stimulus check to buy high quality stocks at deep discounts. With stocks trading close to 20% below their February 19th high, this may be an ideal time to fund a Roth IRA or 529 College Savings Account for the future. Conversely, if you don’t need the stimulus money and are leery of investing in the stock market, consider donating the proceeds to charity. There are dozens of newly created charities designed to support the people and communities affected by the Coronavirus.