Many people are feeling the financial impact of the novel coronavirus pandemic from temporary layoffs and business closures. Most taxpayers will be receiving coronavirus stimulus checks soon.
Adults can each receive up to $1,200 plus $500 per child. A family of four can get a one-time payment of $3,400, for instance.
Here are the key details about how your COVID-19 stimulus check works.
Coronavirus Stimulus Checks: Who Qualifies for Payments
Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020.
This law is the third coronavirus stimulus package and includes several forms of financial aid:
- Stimulus checks (the CARES Act calls them a “recovery rebate”)
- Enhanced unemployment benefits
- Interest-free forbearance for most federal student loans
- Tax-free federal student loan payments from employers
- $300 tax deduction for charitable contributions
- Suspended required minimum distributions for retirement accounts
You may qualify for some of these additional benefits. The coronavirus stimulus payments will have the broadest financial reach across the country.
The 2020 stimulus checks pay up to $1,200 per adult and $500 per child. Your annual income must be below the following amount to get the full rebate:
- Single taxpayers: $75,000 or less
- Married taxpayers: $150,000 or less
- Heads of household: $112,500 or less
You may still receive a partial rebate with an income below $99,000 for singles and $198,000 for couples. The phaseout limit for heads of household depends on how many children you claim.
What is a Stimulus Check?
Maybe this is the first time you have heard of a “stimulus check.” This one-time payment has happened twice before in recent history.
The first check came shortly after the 9/11 terrorist attacks in 2001. The second time was during the Great Recession in 2008.
In all three instances, these stimulus checks came during an economic downturn. In part, the funds were a means to help Americans prepare for a recession.
Here are some key facts about economic impact payments:
- All funds are tax-free
- You can use the cash for any purpose
- It’s a one-time payment
- Each adult gets $1,200
- Child dependents under age 17 add $500
- You need a Social Security number to qualify
- Must file a federal tax return for 2019 (or 2018 in qualifying cases)
The 2020 recovery rebate doesn’t require a minimum income to qualify. As long as you file a federal tax return for 2019 or 2018, you can receive a check.
However, there are income phaseouts for high-income taxpayers.
What Happens if You Don’t File Your Taxes?
Not every person needs to file a tax return each year. If this is you, you will need to file a return for the 2019 tax year to receive a stimulus check this spring.
If you haven’t filed your 2019 taxes yet, the IRS uses your 2018 tax return instead.
The revised federal tax filing deadline is July 15, 2020. But the IRS is asking that you file your 2019 return sooner so they can use this data to calculate your check amount.
Tip: You can file your federal taxes for free.
Your stimulus check is an upfront tax credit reducing the total income tax you owe on your 2020 adjusted gross income (AGI).
The IRS doesn’t know what your taxable income will be yet in 2020, so they use the 2019 tax return you filed this spring.
You can find your adjusted gross income on line 7 of IRS Form 1040 of your 2019 tax return.
You might receive a partial rebate if you had a high income in 2019. Your rebate amount decreases $5 per $100 in additional income.
If your 2019 income fell within the income phaseout, but your income for 2020 doesn’t, you may receive the rest of the stimulus tax credit when filing your taxes in 2021.
You must wait a full year to receive a rebate even if you need financial help now.
Here are the income phaseouts for each tax filing status.
Individual tax returns
Single filers will follow these income ranges:
- Full rebate amount: AGI of $75,000 or less
- Partial rebate: AGI between $75,000 and $99,000
- No rebate: AGI above $99,000
Joint tax returns
You fall into this group if you’re status is “Married, filing jointly” or a Qualified Widow:
- Full rebate amount: AGI of $150,000 or less
- Partial rebate: AGI between $150,000 and $198,000
- No rebate: AGI above $198,000
Head of Household
Heads of household can also receive a stimulus check:
- Full rebate amount: AGI of $112,500 or less
- Partial rebate: Varies
The top income phaseout for heads of household depends on how many children you have. For example, you won’t receive a rebate if you have one child and an income above $146,500.
But the upper phaseout increases to $156,500 with two children.
Do I Need to Pay this Back to the Government?
Your stimulus check is tax-free.
You may repay some of the credit if your income in 2020 falls in or above an income phaseout. However, there isn’t a “clawback provision” requiring a future pay back at this time.
Will I Receive a Check if I’m on Social Security or Disability?
Yes, you will still receive a coronavirus stimulus check if you receive Social Security benefits (SSI) or Social Security Disability Insurance (SSDI).
This exemption is different than the previous stimulus check programs that excluded Social Security beneficiaries.
Initially, the IRS was going to require those on SSI or SSDI to file a simple return to receive their Economic Impact Payments. That is no longer the case and will deposit to the bank account on record.
The IRS will use form SSA-1099 or RRB-1099 to generate a check for those who received non-taxable income in 2018 or 2019 if you did not file a return.
Will I Receive a Check if I’m Self-Employed?
Yes, you will receive a stimulus check if you’re self-employed or earn side hustle income. What matters is that your adjusted gross income falls in or under the income phaseout limits.
How to Receive a Stimulus Check
The IRS will automatically send your check if you have filed a tax return for 2019 or 2018. Most people will receive their check via direct deposit.
You will receive your stimulus check in the same bank account where you get your tax refund.
The IRS is also launching a website to update your bank information.
When will I Receive My Funds?
One question most people are asking is, “Where is my stimulus check from the IRS?”
Treasury Secretary Mnuchin states people may start receiving their check as soon as April 17, 2020. Direct deposits will go out before paper checks.
The rebates will likely disperse in several rounds over several weeks. Checks for those with the lowest AGI will disburse the week of April 13, and approximately five million checks will go out each week until August 17.
It took several months for some taxpayers to receive their stimulus checks in 2001 and 2008. For example, the final round of checks in 2008 was sent approximately eight weeks after the first batch.
Here is the IRS page to check the status of your economic impact payment.
How will I Receive the Money?
You will most likely receive your coronavirus stimulus check via direct deposit. The IRS uses the bank account where they sent your most recent tax refund.
Direct deposit is the quickest way to receive your credit.
The IRS will send paper checks if they don’t have your bank information. However, this delivery method will take longer.
You should receive a notification once the IRS is preparing to send your payment.
Is this Free Money?
The coronavirus stimulus check isn’t free money.
It’s a refundable tax credit that reduces the total income tax you owe on your 2020 adjusted gross income. You’re receiving a partial tax refund several months early.
Taxpayers will only receive a COVID-19 stimulus check once. But if economic conditions do not improve soon, we may see a second payment later in 2020.
What Do I Do if I Do Not Receive a Stimulus Check?
You may not receive a check if your 2019 tax return income exceeds the income phaseouts. Not filing a 2019 tax return or 2018 tax return means you won’t get an immediate stimulus check either.
It’s still possible to qualify for the tax credit on your 2020 tax return if your income is below the maximum income thresholds.
Can the Government Garnish My Stimulus Payment?
The IRS won’t withhold any portion of your stimulus check if you owe back taxes. However, you may receive a reduced check amount if you are behind on child support payments.
How to Use Your Recovery Rebate Check
There are no spending restrictions for your stimulus payment. You may decide to use your stimulus check in the same way you spend your tax refund.
Here are a few ideas to put your stimulus check to good use.
1. Save the Money
Try saving your cash for future expenses if you can currently pay your bills. You might deposit your funds into a monthly fee-free mobile financial app Chime to build an emergency fund.
Most banks have closed their lobbies, so opening an online savings account with high interest rates can be your best option.
2. Buy Essential Items
One reason Americans are receiving a coronavirus stimulus check this spring is to pay for essential bills. Many families live paycheck-to-paycheck, and this check can be a big help.
You may buy these essential items:
- Food staples
It’s best to assess your situation to see what essential items are necessary.
3. Pay Off Debt
Is your savings account well-stocked and can you afford the daily essentials? Consider paying off high-interest debt like credit cards.
Eliminating monthly payments reduces your ongoing monthly expenses.
You might consolidate your debt by getting a lower interest rate. Fiona by Even Financial compares interest rates from multiple lenders with a single search.
Paying a lower interest rate reduces your monthly expenses if you can’t repay a loan in full (yet).
4. Invest it
Investing can turn this one-time payment into long-term passive income. You might consider this option if you don’t need the cash in the next few years and can handle the market risk.
The recent stock market selloffs make experienced investors feel uncomfortable. Most U.S. indexes were at all-time highs before the pandemic.
Stock markets historically rise over a long period, but there are always periods of volatility.
Betterment invests in low-cost index funds and automatically rebalances your portfolio. You can also open a traditional or Roth IRA with Betterment to minimize your taxable capital gains.
5. Donate it
Others in your community or across the world may be in greater need than you. You can donate the funds to your local church or food pantry.
As the novel coronavirus is a global pandemic, international charities will use your donation to provide essential aid.
All taxpayers also receive a $300 tax deduction for charitable contributions in 2020. Keep your donation receipt for tax records. You must typically itemize to deduct charity donations.
How Not to Use Your Funds
There are no spending restrictions for your coronavirus stimulus check. However, some purchases may not be the best use of your cash.
1. Spend it on Something You Don’t Need
You may feel buyer’s remorse by purchasing these items and experiences:
- Electronic gadgets
- New car or boat
- Season tickets to your local sports team or the symphony
- Unplanned Amazon.com purchases
While all of the above are “nice things,” you may have more pressing bills to pay first.
2. Pay Your Student Loans
Making extra debt payments for high-interest loans isn’t a bad use of your COVID-19 stimulus check. But you may wait to make student loan payments.
The CARES Act is placing most federal student loans into administrative forbearance.
Your federal student loans can qualify for these temporary benefits:
- No monthly payments
- All interest is waived
- Suspended wage garnishments on loans in default
- All months still count toward Public Service Loan Forgiveness (PSLF)
These benefits are in effect from March 13, 2020, through September 30, 2020. Perkins loan borrowers also receive three months of forbearance, though interest will still accrue. Read our guide on student loans and COVID-19 to learn more about what’s available to you.
You may consider refinancing your private student loans as they do not qualify for the federal payment suspensions.
3. Ignore It
All taxpayers who automatically qualify for a coronavirus stimulus check will receive one. Not spending or saving your check is like throwing money away.
It’s wise to first use the funds for essential bills you need help paying now. Your stimulus check can also be an effortless way to build an emergency fund.
4. Don’t Withdraw from Your 401(k)
Your stimulus check may make it possible to avoid withdrawing from your 401(k). You may risk not being able to afford retirement. And you can pay early withdrawal penalties.
Most early 401(k) withdrawals incur a ten percent penalty plus income taxes on traditional contributions.
There isn’t a ten percent early withdrawal penalty on the first $100,000 in qualifying coronavirus-related expenses.
However, you must repay the withdrawal amount within three years to avoid paying income tax.
Other Available Resources for Assistance
The CARES Act stimulus check is receiving the most attention for financial aid. But there are other assistance programs at the federal, state, and local level that can help.
Your local news channel or community website is a good starting point. Local charities may also help.
You can also check out these other programs.
Regardless of your state’s weekly unemployment insurance, the CARES Act provides an additional $600 weekly payment. It also extends unemployment benefits by an additional 13 weeks for 39 weeks of total coverage.
Even the self-employed and those with a limited work history can qualify for unemployment benefits. These groups don’t qualify for traditional unemployment benefits.
The Pandemic Unemployment Assistance offers a $600 weekly benefit for up to four months. This program runs through December 31, 2020.
If you’re in need of additional funds, read our guide on ways to make money during a recession to help make ends meet.
How to Apply for Unemployment
You will need to apply for unemployment benefits through your state’s unemployment insurance website.
The CARES Act waives the standard one-week waiting period. You can apply as soon as you lose your job because of the novel coronavirus pandemic.
Once you qualify, the state and federal benefits will automatically deposit each week. If you’re new to unemployment, read our guide on how to file for unemployment to simplify the process.
Credit Cards and Banks
Many banks are waiving standard fees, including ATM surcharges and overdraft fees. You may also be able to defer your monthly payments on loans and credit cards temporarily.
Mortgage and Rent Assistance
Some local and state governments provide mortgage and rent assistance. Contacting your local Human Services Department should be the first place to ask.
The staff can direct you to any available resources.
If government assistance isn’t available, contact your lender or landlord. It’s possible to negotiate an alternate payment plan.
Student Loan Assistance
The U.S. Department of Education is suspending payments and waiving interest on most federal student loans. School-issued Perkins loans and select FFEL loans don’t qualify.
These benefits automatically activate for qualifying loans from March 13, 2020, until September 30, 2020.
For private student loans and non-qualifying federal loans, contact your loan servicer to discuss potential deferral options.
Families First Coronavirus Response Act
The Families First Coronavirus Response Act is another coronavirus stimulus bill. This act provides these benefits:
- 80 hours of paid sick leave due if unable to work due to the effects of COVID-19
- Public health emergency leave through December 31, 2020
- Easier access to SNAP benefits
You can still receive regular meals, even though many schools are closed.
The paid sick leave helps you earn regular income if you need to care for a family member (or yourself) due to the coronavirus.
Caring for a child due to a lack of childcare and school closures are other qualifying reasons.
Your coronavirus stimulus check of $1,200 per adult and $500 per child is arriving soon. You can put this cash to good use by buying essentials or saving for future expenses.
This stimulus is a one-time payment at the moment. However, future aid may arrive if the need arises.
How are you going to use your funds? Do you need it to pay essential bills? Are you able to save it or pay off debt instead?
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