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Stimulus Checks Are Coming: Here's What You Need to Know Thumbnail

Stimulus Checks Are Coming: Here's What You Need to Know


As COVID-19 continues to run rampant in the United States, individuals everywhere are experiencing emotional, physical and economical implications. In an effort to ease the pandemic’s detrimental effects, the federal government has recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Included in this act are hospital funds, extended unemployment insurance, extended lending for corporations and interest-free loans for small businesses. In addition, eligible individuals and families will receive stimulus checks with restrictions.1 To better understand how this component of the CARES Act works, below we give an overview of the stimulus checks and answer key questions.

The Rundown on Stimulus Checks: In General

As part of the CARES Act, taxpayers who qualify will receive a direct deposit of up to $1,200, and couples will receive $2,400. In addition, families will receive $500 per child under the age of 17. The payment will begin to phase out for individuals with a 2018 or 2019 adjusted gross income of $75,000, couples with a $150,000 income, and single parents with a $112,500 income.1

Important to note is that the initial amount paid will be based on either a taxpayer’s 2018 or 2019 income tax return (whichever is the latest return that the IRS has on file), but it will ultimately be ‘trued up’ if a taxpayer is owed money based on their actual 2020 income. In other words, taxpayers will be given an estimated amount based on their 2018/2019 incomes, but could end up getting even more (albeit later) if their 2020 return shows they made less money than they made in the previous two years.

How Does the Phase-Out Work?

Individuals who make under $75,000 and couples who make under $150,000 are eligible for the full stimulus check.1 For taxpayers with higher income, the amount is reduced by $5 for each $100 above $75,000, or $150,000 for couples - up to $99,000 or $198,000. This means that individuals with an income higher than $99,000 are not eligible to receive a stimulus check and neither are joint filers with an income over $198,000.2

How Will I Receive My Payment?

The IRS will use information from 2019 tax returns to calculate your payment amount and will send the payment to the bank account listed on the return. For taxpayers who have not yet filed their 2019 return, the payment will be based on their 2018 return and will be deposited to the account on file from the 2018 return.

What if the IRS Does Not Have My Direct Deposit Information?

The U.S. Department of Treasury is planning to create an online portal where individuals can update their bank information in order to receive a quicker direct deposit, rather than a mailed check.2

If I Usually Do Not File a Tax Return, How Can I Receive a Check? 

The original bill required those who usually do not file a tax return, including low-income taxpayers, senior citizens and Social Security recipients, to  file a simple tax return (but still will not owe tax) in order to receive their check.2 However Treasury Secretary Steven   Mnuchin has reversed this position saying: “Social Security recipients who are not typically required to file a tax return need to take no action, and will receive their payment directly to their bank account.”  

Is the Stimulus Check Taxable?

Since the stimulus check is a tax credit, it is not income and therefore is not taxable. 

Retirement accounts 

Distributions for coronavirus-related needs 

You can tap into your retirement account ahead of time in 2020 for a coronavirus-related distribution of up to $100,000, without incurring the usual 10% penalty or mandatory 20% Federal withholding. You’ll still owe income tax on the distributions, but you can prorate the payment across 3 years. You also can repay distributions to your account within 3 years to avoid paying income taxes, or to claim a refund on taxes paid. 

Retirement plan loans

Maximum amount increased to $100,000 on up to the entire vested amount for coronavirus-related loans. Delay repayment up to a year for loans taken from March 27–year-end 2020.

RMDs (and Retirement Account Beneficiaries)

Required Minimum Distributions (RMDs) go on a holiday in 2020 for retirees, as well as beneficiaries with inherited retirement accounts. If you’ve not yet taken your 2020 RMD, don’t! 

For Charitable Donors

You are able to deduct up to $300 in 2020 qualified charitable contributions (excluding Donor Advised Funds), even if you are taking a standard deduction. This is referred as an  “Above-the-line” charitable deduction. 

You can effectively eliminate 2020 taxes owed, and then some, by donating up to, or beyond your AGI. If you donate more than your AGI, you can carry forward the excess up to 5 years. Donor Advised Fund contributions are excluded.

Various healthcare-related incentives

For example, certain over-the-counter medical expenses previously disallowed under some healthcare plans now qualify for coverage. Also, Medicare restrictions have been relaxed for covering telehealth and other services (such as COVID-19 vaccinations, once they’re available). Other details apply.

For Students

Student loan payments are deferred until Sept. 30, 2020 and no interest will accrue either. Important: Voluntary payments will continue unless you explicitly pause them. Plus, the deferral period will still count toward any loan forgiveness program you’re in. So, be sure to pause payments if this applies to you, lest you pay on debt that will ultimately be forgiven.

Employer-paid student loan repayments excluded from 2020 income

From the date of the CARES Act enactment through year-end, your employer can pay up to $5,250 toward your student debt or your current education without it counting as taxable income to you.

For Unemployed/Laid Off Americans

 Federal funding increases standard unemployment compensation by $600/week, and coverage is extended 13 weeks. Federal funding covers first week of unemployment, the one-week waiting period to start collecting benefits is waived. Additionally, unemployment coverage is extended to self-employed individuals for up to 39 weeks under pandemic assistance. Plus, the Act offers incentives for states to establish “short-time compensation programs” for semi-employed individuals.

For Estates/Beneficiaries

You can  ignore 2020 when applying the 5-year rule for “non-designated” beneficiaries with inherited retirement accounts. The 5-Year Rule effectively ends up becoming a 6-Year Rule for current non-designated beneficiaries.

The CARES Act appears to be taking a streamlined approach as compared to stimulus checks in 2008 and the ARRA checks in 2009 which did not have as robust an impact as it could have with the current added components like an online portal looking to speed up the process. As is the case with the COVID-19 pandemic, the full effects will only be seen in future weeks and months, but we can expect to see the full economical effect as government action unfolds — and individuals respond to the stimulus checks.

  1. https://www.appropriations.senate.gov/imo/media/doc/FINAL%20FINAL%20CARES%20ACT.pdf
  2. https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know
  3. https://www.congress.gov/bill/111th-congress/house-bill/1/text
  4. https://www.irs.gov/newsroom/economic-stimulus-payment-qas-eligibility
  5. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3522430/
  6. http://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/49958-ARRA.pdf

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.