Under the recently passed Coronavirus Aid, Relief, & Economic Security (CARES) Act, many American households will be receiving a stimulus payment (“economic impact payment”). The Act provides for $1,200 to each adult ($2,400 for joint taxpayers) plus $500 for each dependent child under age 17. Legislation is currently pending to extend the $500 credit to all dependents, not just children age 16 and under. Payments are subject to phaseout over certain income limits as shown in the chart below.

Income thresholds and dependents are based on your 2019 Adjusted Gross Income (AGI) if you have filed your 2019 taxes, otherwise they will look at your 2018 tax return. Social Security and Railroad Retirement recipients who are not otherwise required to file a tax return can still receive a stimulus payment based on information from their Social Security or Railroad Retirement tax forms without filing, though it would not account for potential dependents. If your 2020 AGI exceeds these thresholds, you won’t be required to repay the money you received based on your 2018 or 2019 income.

On April 2, Treasury Secretary Steven Mnuchin said that Americans with direct deposit information on file should see their stimulus payments in two weeks. Bank information from your 2019 tax return (or 2018 refund if you have not yet filed for 2019, or from your Social Security or Railroad Retirement benefit if you aren’t required to file) will be used to send the payment. In the coming weeks, the Treasury plans to develop a web-based platform for individuals to provide their banking information to the IRS so they can receive payments immediately as opposed to checks in the mail.

For those who don’t have direct deposit information on file and don’t provide it once the platform is available to do so, the IRS plans to issue paper checks beginning on April 24. They are prioritizing the lowest-income Americans first, with taxpayers having income of $10,000 or less included in the first round. That income threshold will increase by $10,000 each week, meaning that higher-income recipients will not have their checks issued until September. It is therefore strongly recommended that taxpayers provide direct deposit information to avoid such delays in receiving their stimulus payments.

If you (or perhaps your children or grandchildren) are eligible and receive a stimulus payment, there are a few options you may consider before ordering a big screen TV or planning an island getaway for after the world returns to its new normal.

Take Care of Yourself & Your Family

The well-being of yourself and your family is of primary importance.

Many individuals and families have seen their income significantly decreased. Even if your income remains the same, your expenses may be higher due to unexpected medical bills, increased childcare costs shifting from a daycare center to in-home care, or a variety of other reasons. If you’ve had a change in cash flow, the usage of your stimulus check to cover current expenses may be readily apparent.

Establish an Emergency Reserve

If your expense needs are already met, make sure you have a cushion in the event that your circumstances change, or unexpected expenses are incurred. As a rule of thumb, establish cash reserves in your checking or savings account that could cover at least three to six months of living expenses.

Support Others

If your needs and those of your family are met, you may consider helping others. This may be aiding individuals directly or through charitable organizations doing wonderful work nationally and in our local communities. If you do choose to donate cash to a charity, the CARES Act provides a new $300 above-the-line deduction for those claiming the standard deduction and removes limitations on donations as a percentage of income in 2020 for those who itemize their deductions. Prior percentage limitations still apply for contributions to donor advised funds or private foundations, so donations would need to be made to charity directly to allow for deductions up to 100% of income.

In addition to helping individuals and charities, you may look to support local businesses who have seen their recent revenues diminished. Perhaps your favorite restaurant is still offering carryout or delivery.

Invest for the Future

With markets off of their February record-highs, you may consider investing toward your future financial goals. Perhaps that means saving for retirement or college expenses. Roth strategies look particularly attractive in a down market. Remember that for 2020, you have until July 15 to make your 2019 IRA contribution.  

No matter what you choose to do with your stimulus funds, we wish you health and happiness. Together, we will weather this pandemic and unprecedented volatility.

For more information on this topic contact Heather Welsh.