Gary W. Pelletier, CLU, ChFC, AIF®

Northeast Planning Associates, Inc.

Corporate, Estate

& Financial Planning


Your Stimulus Check: Know the Facts (Plus Some Ideas on How to Spend It)

| May 11, 2020
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One of the key components of the CARES Act to help lessen the financial impact of the COVID-19 pandemic was a direct payment to a majority of Americans, called Recovery Rebates or stimulus checks. 

First, what are these rebates, and what are they not?  The Recovery Rebates are pre-payments or advances of a 2020 tax credit.  This means the money received is not taxable, nor is it a loan that needs to be repaid.

Who is eligible for a Recovery Rebate?  All U.S. residents or citizens with adjusted gross income under $75,000 ($150,000 married filing jointly), who are not the dependent of another taxpayer and have a work-eligible Social Security Number, are eligible for the full $1,200 ($2,400 for married couples) rebate. They may also be eligible for an additional $500 per child (dependent, under age 17).  This means a typical family of four could be eligible for a $3,400 recovery rebate.

Are taxpayers with adjusted gross income over $75,000 ($150,000 married) still eligible to receive any rebate?  Yes!  The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold. The amount is completely phased-out for single filers with incomes exceeding $99,000, and $198,000 for joint filers with no children. For a typical family of four, the amount is completely phased out for those with adjusted gross incomes exceeding $218,000.  Check out this calculator to determine the amount for which you may be eligible.

What if my income was above the threshold in 2019, but I’ve experienced a significant decrease in income due to coronavirus? Can I still get a stimulus check?  If your income in 2019 was in the phase-out range you would still receive a partial rebate based on your 2019 tax return. However, the rebate is actually an advance on a tax credit that you may claim on your 2020 tax return. If your income is lower in 2020 than in 2019, any additional credit you are eligible for will be refunded or reduce your tax liability when you file your 2020 tax return next year.

Is my college student eligible for a stimulus check?  If the student is not a dependent of you or anyone else, and they filed a separate tax return for 2019, then the student could conceivably receive a payment this year.  If not, but they meet those same requirements for 2020, they may still qualify for the tax credit when they file their 2020 tax return.

Nearly 90 million eligible people have already received their money.  So what should recipients do with it?  As with anything, the right answer depends on your situation and multiple factors, but below are some ideas for you to consider.

  • Makes sure your “four walls” are taken care of. Before anything else, you should be sure your basic needs like food, shelter, transportation, and utilities are covered.
  • Next, it may be useful to pad your emergency fund with the stimulus money, in case the financial impact of the virus is longer lasting than first anticipated.
  • If you are on solid financial footing right now and your emergency fund is sufficient, consider paying down some high-interest debt. This can help you further stabilize your financial situation to be able to weather any future events like this one.
  • There are many worthy causes out there, so you may want to consider giving some or all of your Recovery Rebate to support their efforts. If you don’t already have a favorite charity, check out org to research organizations.  Unfortunately, there are unscrupulous people trying to profit from the pandemic, so it’s wise more than ever to do your due diligence before giving money.
  • Investing your rebate money could be an option for some. If there’s still potential that this money could be needed in the short term, it may be prudent to invest the money conservatively, in something that also provides liquidity. 

There is significant misinformation out there on these payments, so feel free to share this information with everyone you know, and certainly reach out to us if we can provide you with further guidance.

Content provided in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any decision. Content from third party links is not affiliated with, nor endorsed by LPL Financial (and LPL Financial DBA Names). Users accessing these links assume responsibility and risk.

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