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After much debate, the Senate has passed a bill that will send relief checks to most Americans. The checks are part of a $2 trillion relief package aimed to buoy the economy through the coronavirus pandemic.
The checks will be worth up to $1,200 per adult and $2,400 per jointly filing couple. Families will also get $500 per child. You must have a Social Security Number to get a check.
If you make more than $75,000 per year (or $150,000 per couple), you’ll get less than $1,200. A phase-out system will reduce your payment, ending up at zero once you hit an annual salary of about $99,000 per person (or $198,000 per couple).
Forbes contributor Kelly Phillips Erb explains the phase-out this way:
For every $100 of income above those thresholds, your check will drop by $5. So, if you are a single filer earning $75,100, your check will be $1,155 ($1,200-$5). If you are a single filer earning $85,000, your check will be $700 ($1,200-$500).
The amount you get will be based on the adjusted gross income on your 2018 tax return. If you already filed for 2019, your amount will be based on your adjusted gross income for 2019. If you have account information on file (for example, from your latest tax refund payment), you’ll get the funds via direct deposit. Otherwise, you’ll get a check in the mail.
The House of Representatives is expected to vote and pass the bill on Friday. From there, it must be signed by President Trump before the process of printing and mailing checks begins.
How to use your recovery rebate
The obvious primary use for these payments is to help people make ends meet more easily during an uncertain time when many people are out of work. If you have bills due, deciding how to use your relief check is an easy one.
But if you’re still being paid regularly, you might wonder what you should do with the money.
“One warning is to those who might consider this ‘fun’ money,” said Bobbi Rebell, a CFP and personal finance expert at Tally. “This is money that if not immediately needed should be added to your emergency fund and only used in an emergency. This is not a time to use it for a splurge or a ‘treat.’”
While you may feel confident about your finances now, the reality is that your situation could change at any time. Building up an emergency fund or paying your rent ahead of time could put you on solid footing to weather the upcoming months more confidently.
“If you don’t need this relief money for immediate living expenses, then it counts as a windfall,” said Eric Bronnenkant, a CFP and head of tax at Betterment. “The trouble with windfalls of $1,000 or more is that we’re often not psychologically prepared for them.” We see a windfall as a bonus, he explained, and have an instinct to spend our “free” money. That’s why it’s important to have a plan for your stimulus check before you even receive it. “Don’t be tempted to spend it ton things you don’t need,” Bronnekant said.
If you already have a healthy emergency fund, Bronnenkant, recommends paying off high-interest debt like credit card debt. You can also use your stimulus check to increase your retirement contribution or save toward an important goal like a child’s college savings.
How your relief check affects your 2020 taxes
Your check is basically an advance on a refundable tax credit. That means if you get a smaller rebate than you should have based on the income on your taxes (say, because you lose income for part of the year due to the coronavirus), you’ll get the difference applied to your 2020 tax return, explained The Tax Foundation.
If you get more than you should have (say, you had steady income in 2020 and actually got a raise), you won’t have to pay back the money from your rebate check.
The last time taxpayers got a rebate was in 2008, when George W. Bush signed that year’s Economic Stimulus Act. Individuals received between $300 and $600 depending on their income the previous year, with checks arriving about three months after they were announced.
But the effort didn’t exactly boost the economy like Bush had hoped: Researchers later found that most recipients either saved their rebate or used it to pay debt.
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