Many Americans are feeling the upfront financial effects as the nation combats the spread of novel coronavirus. Individual Americans will be getting a “stimulus check” to offset lost wages and cover other expenses during this challenging time.
If you need money fast, this rebate can provide some much-needed financial relief especially if you don't have many side hustle options.
For those keeping score at home…
The Senate recently (night of March 25th) passed the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act.” It's a larger package than their first proposal but smaller than the one put forward by the House. The House is expected to pass it by unanimous consent on Friday morning (this update was written Thursday night) and the President will sign it shortly thereafter.
Here are the details of the stimulus check, also known as a “recovery rebate” in the bill's language:
What is a Recovery Rebate?
Recovery rebates are a one-time payment that American households can receive from the federal government. These rebates provide upfront financial relief to individual taxpayers during times of economic downturn. The two previous rebates were immediately after 9/11 and during the 2008 Great Recession.
Recovery rebates are effectively a retroactive federal tax cut for individual and joint taxpayers. You must have filed a federal income tax return in a recent tax year. Your tax return is the equivalent of sending proof of purchase for a mail-in rebate. It lets the IRS know how much money to send you.
Receiving your stimulus check is as easy as filing your federal 2019 tax return. If you owe a tax liability, this return is normally due on April 15, 2020. The new due date is July 15, 2020, due to the novel coronavirus outbreak.
To send you a rebate right away, the Internal Revenue Service (IRS) uses your federal 2019 tax return income details to determine the size of your stimulus check. The IRS may use your federal 2018 tax return instead if you still need to file your taxes for tax year 2019 — you now have until July 15, 2020.
Beware of stimulus check scams – like someone asking for your banking information to send you your check – because the IRS won't call you, email you, or ask you for that information. You have to go to the IRS website directly to enter that in, if ever.
Coronavirus Aid, Relief and Economy Security Act (CARES Act)
The Senate Republicans' passed stimulus bill is the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The CARES Act is providing a one-time recovery rebate for many American households.
You would get:
- Each taxpayer would get $1,200, joint filers would get $2,400
- Each taxpayer would also get $500 per qualifying child, with no limit on the number of children
- Income phaseouts start at $75,000 for single filers, $150,000 for joint returns, and $112,500 for head of household.
- The amount of your check is reduced by 5% of your income over the phaseouts
- You must have a valid Social Security Number
- Filed a federal tax return for tax year 2019 (or 2018 if haven't filed for 2019 yet)
The way this check is structured is similar to how they structured them in the past. It's an advance on a refundable tax credit for 2020. In other words, the bill creates a new refundable tax credit for 2020 (you can't backdate this stuff) but it is instructing the IRS to pay this credit in advance.
To calculate the amount you get right now, they will use your 2019 tax year information if you've already filed it. If you haven't, they will use 2018 tax year information. Once you file your 2020 taxes, if they underpaid then they will pay you more. If they overpaid, it's not expected that you pay it back.
If you haven't filed either tax return, you can still qualify if you have a Form SSA-1099 Social Security Benefit Statement or RRB-1099 Social Security Equivalent Benefit Statement. If you don't have that, you should file a 2019 tax return as quickly as you can.
This will likely bump up the average tax refund for 2020.
No Minimum Income Limits
No minimum income required!
The 2020 recovery rebate doesn't have a minimum income threshold. You can earn the full rebate amount even if you have a small income.
You will still qualify for this rebate even if you receive these “unearned” income streams:
- Social Security benefits
- Pension distributions
- Disabled veteran payments
The original draft of the CARES Act required a minimum annual income of $2,500 and a phase-in to earn the full rebate amount. The passed bill does not have this requirement.
Maximum Income Limits
High-income households won't qualify for the full recovery rebate of $1,200 per adult and $500 per child. However, this isn't an “all or nothing” rebate. Income phaseouts start $75,000 for single filers and $150,000 for couples.
Your rebate amount decreases $50 (5%) for every $1,000 of additional income.
- Full rebate: AGI of $75,000 or less
- Partial rebate: AGI between $75,001 and $99,000
- No rebate: AGI above $99,000
Head of Household
- Full rebate: AGI of $112,500 or less
- Partial rebate: AGI between $112,501 and $148,500
- No rebate: AGI above $148,500
Married, Filing Jointly
- Full rebate: AGI of $150,000 or less
- Partial rebate: AGI between $150,001 and $198,000
- No rebate: AGI above $198,000
Receiving Your Stimulus Check
According to Treasury Secretary Steven Mnuchin, households should begin receiving their rebate in late April or early May.
Your two ways to receive your rebate are by direct deposit or a paper check. The IRS will use the information from your tax return to send the direct deposit or physical check.
Within 15 days after they make the payments, they will send out a letter to each household. It will include the amount of the payment and how it was made. Any information you need to update your bank information or update your address will be included too. If you didn't receive the mailer, likely because you moved, review the IRS Coronavirus Tax Relief page for more information.
If you run into any problems, here is how to reach a live person at the IRS.
Spending Your Recovery Rebate
Other than being a tax-free financial windfall, you can use your rebate check as you wish. This rebate is likely a one-time payout – so use it wisely.
Here are some productive ways to spend your stimulus check.
Pay Essential Bills
You may use this cash to pay your essential bills like utilities and rent. Utility companies are disconnections temporarily waiving late fees and suspending service . But you should still pay these bills on time to keep your account in good standing.
If you're still struggling to make ends meet, consider canceling unnecessary expenses when possible. There are several easy ways to cancel your cable and switch to a streaming app.
This stimulus check can ensure that food and other necessary supplies are in the cupboard. It will be easier to find items that you need as stores rebuild their inventories after the initial nationwide buying spree.
You can increase your spending power by using cash rewards shopping apps. You can save money at grocery stores, warehouse clubs, and large retailers.
Support Local Businesses
A few local businesses are still operating while society “shelters in place.” These funds can be a much-needed lifeline so they can keep their doors open once the regular times return.
Here are some ways you can help your favorite businesses:
- Get takeout from restaurants
- Buy home repair supplies from a hardware store
- Purchase prescription medication from a local pharmacy
- Purchase gift cards to use in the future
Pay Off Debt
This spring can be an excellent time to reduce your monthly expenses. Paying off a small loan amount means one less monthly payment. The monthly savings can help you purchase essentials in the coming months or rebuild your savings.
Some lenders are waiving the late payment fees on loans. Temporary deferral of interest charges and regular monthly payments are also possible. But the lender may tack on the interest charges to the end of the loan.
Contact your lender if you're experiencing temporary hardship as banks review your options on a case-by-case basis.
Plan for Future Expenses
The beauty of this recovery rebate is that you don't have to spend the cash immediately. If you're well-stocked and able to pay your bills, set aside the money for a future purchase.
Many people will be feeling hardship during this time. Three potential reasons are medical bills, unemployment, and hunger. You might decide to use your rebate to help your neighbor instead of yourself.
One way to help is finding shut-ins and the high-risk you know that must stay inside to avoid potential exposure. See if you can buy their groceries and supplies.
The best charity can be one you already donate to and trust. Charity scams are common during times of disaster and crisis. Perform your due diligence to make sure your donation goes to a credible organization.
Recovery rebates for individual taxpayers rarely happen. This stimulus check can be the financial aid you need to help your family.