Your Stimulus Payment: Everything You Need to Know – and What You Should Do With Your Money

Source: (Source: Google [Alphabet, Inc.])

The bottom line here is that the coronavirus money could be the chance you need to get into the market and have a piece of the action. What are you waiting for? You actually have nothing to lose.

The Word On the Street

Since last February, the U.S. economy has been creaking under the pressure of the coronavirus pandemic, which has brought the country almost to its breaking point, forcing many of its businesses to close down and many workers to lose their jobs. It is indeed a good thing that the U.S. government decided to step in to bail out its businesses and the country’s citizens with the Coronavirus stimulus package – a $2 trillion relief bill (known as the CARES Act) that will send money directly to Americans, greatly expanding unemployment coverage, guaranteeing  loans to businesses, and making a number of other changes.¹ Given that the U.S. government is willing to lend their hand to help its citizens recover from the hardship that resulted from the Coronavirus crisis through direct payments, the questions that naturally arises are: Who gets the stimulus checks? Who doesn’t get a check? How and when will the government send the stimulus check? Is this a one-time payment? What are the best things to do with the stimulus check? Because the hope of receiving the coronavirus check is now something that has become a national fixation, this article will attempt to answer these questions briefly in their order.   

The bottom line here is that many Americans are now receiving government checks of up to $1,200 (plus $500 per child) as part of the $2 trillion coronavirus relief package. By sending these checks, the U.S. government intends to help them ride out  job loss, reduced work hours, and other money challenges that they may suffer as a result of the coronavirus crisis.

Who is Eligible for a Stimulus Check?

According to published reports about 93.6 percent U.S. tax filers (or approximately 140 million U.S. households) will get the stimulus check in April of 2020. Broadly, your eligibility is based on two factors, namely, your most recent tax return and your adjusted gross income.² This means  that if you already filed 2019 taxes, the Internal Revenue Service (IRS) will use the information therein to determine your eligibility for the coronavirus check. But, if you have not filed your 2019 taxes yet, then the IRS will use your 2018 tax return to determine if you qualify. It is important to note here that the benefit is also available to those who do not file taxes, particularly those Americans who receive Social Security benefits, provided that they have received their RB-1099 or SSA-1099 forms.

Among those who are eligible for the check, the breakdown of how much they will receive is explained in table 1 below. In addition to the information in table 1, those Americans  who are eligible for the stimulus payments and have children will also receive an additional $500 payments for each child under 17 years.

Table 1

Who Gets a Stimulus Check?

Category	Estimated Amount/Payment ($)
Single adults with income up to $75,000	1,200.00
Single parents who filed as head of household with income up to $112,500	1,200
Single adults with income of $75,001 to $99,000	Reduced check (less than $1,200)
Married couples with income up to $150,000	2,400.00
Married couples with income of $150,001 to $198,000	Reduced check (less than $2,400)

Who is Not Eligible for a Stimulus Check?

It is worth bearing in mind that not every American will receive the coronavirus relief check. For instance, if you are a single adult and you make more than $99,000 a year, then you won’t get the check. Also, all the married couples that make more than $198,000 a year won’t receive stimulus checks either. Other people who will not receive the check include those without a Social Security number and those who are nonresident aliens (that is, those who are not U.S. citizens or U.S nationals).³ Some U.S. residents who have no green cards or who have not passed the substantial presence tests are also not eligible for a stimulus check. Finally, if your parents claim you as a dependent on their tax return, then you won’t get a stimulus check.

How, and When Will the Government Send the Check?

If you filed taxes in 2018 and 2019 then the IRS will use the direct deposit information you provided to send your money. There’s another option for receiving your money: the IRS will mail you a check instead if you have no direct deposit information on file, or if the account you provided when you filed your tax return is now closed.

This leads us to the next question: when will the stimulus check arrive? At a White House briefing on April 2, the Treasury Secretary Steven Mnuchin promised Americans that those that signed up for direct deposit will receive the payments within two weeks.⁴ The truth is that many Americans who have their direct deposit information with the IRS received the coronavirus payments on April 15, 2020, thereby confirming Steven Mnuchin’s promise.

How about those Americans who do not have their direct deposit information with IRS? The IRS has created an online portal so that those Americans in this group will provide the agency with the information so as to get their payments faster – specifically, within a couple of days of them providing that information. The portal can be accessed by visiting or clicking on the link shown in figure 1 below.

	Figure 1: Get My Payment Portal     https://sa.www4.irs.gov/irfof-wmsp/login

 

For those Americans who did not provide their direct deposit information to the IRS, the only option is to wait for paper checks to be mailed to them. This means that they will receive their payments later, as paper checks would start to be sent out on April 24, while some of them wouldn’t be sent out until September of the year.

There are some Americans who are not required to file tax returns due to the size and the sources of their incomes. The IRS requires those Americans in this category to file their tax returns if they want to receive the stimulus check. Again this means a longer wait for them. The timetable for their first checks is shown in table 2. The rest of the checks will be paid to the eligible Americans by gradually increasing income increments each week. If your household earned $198,000 and you filed your tax jointly with your spouse, for instance, then you will get a reduced check on September 4, 2020. Those who didn’t have tax information on file and had to apply for checks will receive the last group of checks on September 11. It should be noted here that Social Security recipients don’t need to provide additional information, but still must meet the eligibility criteria to get the stimulus check.

Table 2

Americans With Lowest Income: Timetable for Their First Stimulus Checks

Income Group($)	Dates for Mailing Coronavirus Stimulus Checks
Taxpayers with income up to $10,000	April 24, 2020
Taxpayers with income up to $20,000	May 1, 2020
Taxpayers with income up to $40,000	May 15, 2020

How to Check the Status of Your Check

You can check the status of your check, or speed up the delivery of your coronavirus check through the IRS website shown in figure 1. This site also allows you to provide your bank account details needed to receive an electronic payment if you haven’t done so already. In addition, the site allows you to check when the payment will arrive. As of the middle of April 2020, more than 6.2 million U.S. taxpayers have used the site to learn their payment status, according to the IRS. It should be noted here that the IRS has direct deposit information for fewer than half of America’s estimated 170 million taxpayers in their database.⁵ This explains why they created the website to speed up the coronavirus stimulus payments to more Americans.

While more than 1.1 million America’s taxpayers were able to provide their banking information at the site as of the middle of April 2020, there were reports from others who encountered delays or difficulties using the site. Even though IRS has been working tirelessly to resolve the issues, they have also provided a list of frequently asked questions (FAQ) on its website to assist people who might seek more clarifications about the payment. This website is shown in figure 2 below.

	Figure 2: IRS – Coronavirus Check FAQ https://www.irs.gov/coronavirus/economic-impact-payment-information-center

 

There are a few more things about the site that you need to know. First, it does not allow people to change their direct deposit or bank account information that the IRS (or the government) already has on file.  This means that if you have already closed the bank account you used for direct deposit last year (that is, 2018 tax year), then the bank will send your money back to the government. In that case, the IRS will mail a paper check to your last known address they have on their file. Second, many people received the error message ‘Payment Status Not Available’ when they tried to use the site to check the status of their check. If this happened to you, it may mean many things. For instance, it could mean that either you are not eligible for the payment, or that you have not filed 2018 or 2019 tax return as required by the IRS. It could also be that you recently filed a tax return that has not been processed, or that you are currently receiving Social Security, disability or Veterans Affairs benefits, according to the IRS.

Is this a One-Time Payment?

In plain terms, the correct answer is a yes, at least for now.⁶ The truth is that Congress will have to pass new legislation if there is to be another wave of similar economic relief payments. Even if they would pass a new bill in that regard, it remains unclear whether direct stimulus checks would be included again. It is worth remembering that through expanded unemployment benefits and loan programs for small businesses in addition to the stimulus checks, the CARES Act addresses many short-terms needs of the U.S. economy. The government may roll out phase two of the Act if the economy continues to struggle for an extended period. However, phase two might require different actions from the government, such as some type of belt-tightening or austerity measures.  

Figure 3: A New Wave of Coronavirus Relief Payments will Require a New Congressional Legislation. (Source: Google [Alphabet, Inc.])

Will I Get the Check If I Took a RAL Loan?

You may experience a delay in receiving your coronavirus stimulus check if you had previously filed your taxes with companies such as H & R Block, Jackson Hewitt, and Turbo Tax. This is because these companies offer services known as refund anticipation loans (RAL) – a service whereby their customers can get refunds due to their tax returns immediately for a fee.⁷ They usually  provide RAL loan to their customers using debit cards that are attached to temporary bank accounts. The problem here is that the IRS may not have those individual’s direct deposit information on file to make the payments, hence the delay. Both the IRS and the Treasury Department are aware of this problem, which may be affecting only a portion of these companies' clients. So, if you have a RAL loan in your 2018 or 2019 tax filling, the Treasury Department and the IRS recommended that you access the Get My Payment app or portal shown in figure 1 to enter your direct payment information.      By doing this, you will know your status vis-à-vis the stimulus check.

Will I Have to Pay the Stimulus Check Back?

Let me put it as simple as I can: the good news is that the stimulus payment is not a loan so you don’t have to pay it back. It does not count as a taxable income either, so you will not owe tax on your payment. There is even more good news: the stimulus payment will not reduce your tax refund or increase the amount you owe when you file your 2020 tax return next year, according to the IRS.⁸ In addition, receiving the stimulus check will not affect your income for purposes of determining your eligibility for federal government assistance or benefit programs. The simple truth is that the stimulus check is a bit of extra money the government is giving you at a time you needed it most. So, no worries!

What to do With the Coronavirus Check

So you have received your coronavirus stimulus money. Like most Americans, it very possible that you have already made up your mind how to spend the money. But, have you considered that this may be your one shot at building an emergency fund, or at investing in stocks? Note that this article is not trying to tell you how to spend your money. If you need to pay for medications, groceries, and sudden life emergencies, use the money by all means. It is important to take care of those things because they will always be an important part of your financial lifeline. However, if you are interested in making the most of this money, there are some things you should do after accounting for critical expenses. Below are a few of them.

Creating an Emergency Fund

This might be the right time to create an emergency fund or to further build emergency savings. According to financial planners, you need to have a liquid fund of at least three to six months of living expenses.⁹ The reason for this is very simple: your emergency fund will provide a good financial cover for you in the event of an unexpected financial blow as well as help prevent you from going into debt. A sufficient emergency fund also provides peace of mind if you lose your job. In addition, your emergency fund provides both a financial shield and peace of mind if you suddenly become too ill to work or have to cover a major car or home repair.¹⁰

Are you trying to pay off debt? Then your emergency fund is your best friend. This is because it can help you stop adding to your debt with every financial bump in the road. Life happens and things you don’t budget for, like car repairs or medical costs, might raise up their ugly heads. With a sufficient emergency fund, you can easily cover these stressful events and stay focused on getting out of debt. It is important to note here that when you have a financial cushion for unexpected expenses, it is often easier to pay extra money on debt right away. And, by the time you know it, you will be free of debt.

Do you only have only one source of income? Then you need an emergency fund the way you need air in your life. Simply put, a substantial emergency fund will help you get through an unexpected job loss or illness if you only have one source of income. In plain terms, my rule of the thumb is that you should have at least two year’s worth of expenses in your emergency fund if you are a one-income family.

According to the available published evidence, about 53 percent of U.S. adults do not have an emergency fund that covers at least three months of expenses and 49% of them expect to be living paycheck to paycheck in 2020.¹¹ In addition, a large number of Americans are currently, or will be, struggling with unexpected medical expenses. This simple fact alone should make the conservation of cash in the form of an emergency fund the order of the day.

Pay Down or Pay Off Your Debt

The truth has remained that U.S. adults have been taking on increasing amounts of debt long before the spread of coronavirus brought the country’s economy to a near standstill. A  New York federal reserve employee, who asked to remain anonymous for privacy reasons, said the U.S. has surpassed $1 trillion in credit card debts – a value that is considered the highest since the great recession.

So, if you have a large amount of debt, you would be better off putting your stimulus check to good use by paying down some of those high-interest balances you have. Too much debt depresses your credit score and can hurt you in many other ways, such as being turned down for a job (especially upper management or finance industry jobs), being denied a car loan and having a difficult time renting a house or an apartment. This is one of the reasons most financial planners recommend keeping your consumer debts (such as credit cards, car loans, and so on) payments below 20 percent of your monthly salary.

Start Investing

I know that this might sound strange to you, especially in these days of coronavirus pandemic when the stock market has plunged significantly. But, if history is any guide, this is actually the best time to invest in stocks: you buy when there is blood in the street – even if it’s your own blood.¹² This is because at this time when the market has experienced a sizeable drop, you can buy the stocks of good companies at a deep discount. During the 1973-1974 bear market, for instance, the U.S. stock market lost 42 percent of its value within 22 months. This gave Warren Buffet, one of the most successful stock investors in the world, the opportunity to purchase a stake in Washington Post Company at a steep discount. This investment later increased by more than 100 times the purchase price and made Warren Buffet even richer. At the time the Washington Post Company had only an $80 million market capitalization - a term used to describe the total dollar market value of a company’s outstanding shares of stocks. The company was sold to Amazon’s billionaire  founder and CEO Jeff Bezos for $250 million in cash in the year 2013.¹³  

But I don’t have millions of dollars to invest in the stock market, you might say. The truth is that you don’t need to be a millionaire to invest in the stock market. You can start small by investing, say, $100 every month in mutual funds such as T. Rowe Price or in index funds such as Vanguard S & P 500 Index Fund. It is worth bearing in mind that investing is not hard – you just have to treat it like your monthly bill. This is how to do it: simply open account with a good mutual fund company (I always recommend index funds or exchange-traded funds [ETFs], such as Vanguard S & P 500 Index Fund and SPDR Gold Trust) and set up an automatic allotment of say, $100 to $200 from your checking account each month. If you treat stock investment as a bill in this way, it means that you have made investing part of your budget; and in a couple of years, you will be surprised how rich you will become, no matter what the market is doing.

Again, though the market is down now, it will bounce back in a few months or years. Data from the 2008-2009 financial crises (and other financial crises before it) showed that, for those stock investors who got in when the market was down and stayed the course have their stock values fully bounced back within three years, or by the end of 2010. The bottom line here is that the coronavirus money could be the chance you need to get into the market and have a piece of the action. What are you waiting for? You actually have nothing to lose.

References

¹Bernard, T. S., & Liebar, R. (2020, April 14). F.A.Q. On Stimulus Checks, Unemployment and the Coronavirus Plan. The New York Times. Retrieved April 14, 2020, from https://www.nytimes.com/article/coronavirus-stimulus-package-questions-answers.html

²Tsekova, D. (2020, April 13). Coronavirus Stimulus Checks: IRS Plans Tool That Will Let You Track the Money. Yahoo! Money. Retrieved April 14, 2020, from https://money.yahoo.com/coronavirus-stimulus-checks-irs-tool-lets-you-track-the-money-to-your-household-145659731.html

³ibid

⁴Jagoda, N. (2020, April 2). Mnuchin: First Coronavirus Rebates to Be Issued 'Within Two Weeks'. The Hill. Retrieved April 16, 2020, from https://thehill.com/policy/finance/490919-mnuchin-first-coronavirus-rebates-to-be-issued-within-two-weeks

⁵Wire, S. D. (2020, April 15). Some Americans Can Get Stimulus Payments Faster With Newly Launched IRS Site. Yahoo! Finance. Retrieved April 18, 2020, from https://finance.yahoo.com/news/americans-coronavirus-payments-faster-newly-123309731.html

⁶Harris, J. (2020, April 13). When Will Coronavirus Stimulus Payments Arrive? A Primer on the Federal Relief Plan. Los Angeles Times. Retrieved April 18, 2020, from https://www.latimes.com/business/story/2020-04-13/when-will-coronavirus-stimulus-checks-arrive

⁷Konish, L. (2020, April 16). Your Stimulus Check Could Be Delayed If You Got an Advance On Your Tax Refund. CNBC. Retrieved April 18, 2020, from https://www.cnbc.com/2020/04/16/use-a-commercial-tax-preparer-your-stimulus-check-may-be-delayed.html

⁸Internal Revenue Service. (2020, April 18). Economic Impact Payment Information Center. Retrieved from https://www.irs.gov/coronavirus/economic-impact-payment-information-center

⁹Caldwell, M. (2019, November 20). 8 Reasons You Need an Emergency Fund. The Balance. Retrieved April 18, 2020, from https://www.thebalance.com/reasons-you-need-an-emergency-fund-2385536

¹⁰ibid, para. 2

¹¹Dickler, J. (2020, March 25). Here’s What You Should Do With Your Coronavirus Rescue Check. CNBC. Retrieved April 19, 2020, from https://www.cnbc.com/2020/03/25/best-ways-to-use-your-coronavirus-rescue-check.html

¹²Myers, D. (2020, March 9). Contrarian Investing: Buy When There's Blood in the Streets. Retrieved from Investopedia: https://www.investopedia.com/articles/financial-theory/08/contrarian-investing.asp

¹³ibid, para. 8