Perhaps the most talked about provision of the new stimulus package is the checks the government will be sending out to help people in this time of need.
Though the full amount a single person can get is $1,200, couples can potentially receive double this amount, and families with children can receive $500 per child under the age of 17.
But not everyone will receive the full amount, or even anything at all, as it is calculated using your 2018 or 2019 adjusted gross income and phased out for certain people with too much income during those years.
Higher-earning individuals will see their check amount reduced by 5% of their adjusted gross income over $75,000, $150,000 for married couples filing jointly, or $112,500 for head of household filers. The payment can be completely “phased out” (the person or family receives nothing) if a person’s income is high enough.
That happens at:
$99,000 for single filers
$146,500 for head of household with one child
$156,500 for head of household with two children
$198,000 for married couple filing jointly
$208,000 for married couple with one child
$218,000 for married couple with two children
Consider these people as paying the “lucky tax” for having high incomes.
If you want to calculate the exact amount you will receive, there are plenty of calculators available online like this one from H&R block: https://www.hrblock.com/coronavirus-tax-impact/calculator/
The checks are called Recovery Rebates and are technically a refundable tax credit against 2020 income. That means though the amount you are sent will be based on 2018 or 2019 income, but if you did not qualify those years but see a drop in your income in 2020 that puts you below the phase-outs, you will eventually receive this rebate when you file your 2020 taxes. This is unfortunate for those who have suffered a loss of income and really need the money now, but it is good they at least get it eventually.
Not only may income change in 2020, you could also have a child, which would increase your benefit amount as well. This will apparently have to wait until 2020 tax filing to get sorted out as well.
The lucky people who qualified for the Recovery Rebates based on their 2018 or 2019 income but see their income rise above thresholds that would disqualify them from receiving it in 2020 (in other words, they got a check they weren’t supposed to get or one that was higher than it should have been) will not have to return the excess amount.
We don’t know exactly when these payments will go out, but the Treasury department has indicated it may be as early as three weeks.
How they get that payment to you will vary. Some people will have them direct deposited to the same account their 2018 or 2019 refund was sent to. Retired individuals taking Social Security will have the money deposited into the account where they receive their Social Security benefits. Other payments will be sent to the last known address on file.
Treasury Secretary Steven Mnuchin also mentioned the availability of a web-based app for those whose information is not on file already, and the leadership of companies like Venmo, Cash App, and Zelle have all expressed interest in helping out with delivery of these payments as well.
In any case, the government seems intent on getting this money to people as quickly and as easily as possible in this time of need.
This is just one of the many provisions of the new stimulus package called the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the one we wanted to cover first as it has received the most hype and will benefit an estimated 90% of Americans.
Be on the lookout for upcoming blogs covering other aspects of the stimulus package like the Paycheck Protection Program (a huge deal for small business owners) and new retirement account loan and hardship withdrawal rules.
Paul R. Ruedi, CFP® is a financial advisor at Ruedi Wealth Management.
Paul has been quoted in news publications including USA Today, Time Magazine, The New York Times, Dallas Morning News, Forbes, Inc.com, Business Insider, US News and World Report, GoBankingRates, The Street, NerdWallet, and The Penny Hoarder. He also writes articles that have been featured in CNBC, Investopedia, Yahoo Finance, Nasdaq, and MSN Money. He was named one of Investopedia's Top 100 Most Influential Financial Advisors in 2018.
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