The CARES Act
The CARES act or Coronavirus Aid, Relief, and Economic Security act is a federal law that in part directs the use of the 2 trillion dollars of funding for COVID-19 relief aid. For the purposes of this article, we are going to focus primarily on the stimulus checks or economic impact payment.
These stimulus checks continue to be the sources of confusion amongst conversations, so I think before we talk about how to use it, we need to clarify some of the many questions surrounding it.
What is it?
The stimulus check is money that is considered a 2020 tax credit that citizens are being given if they qualify. .
Who Qualifies?
- Have a Valid Social Security Number
- Are not claimed as a dependent
- Filed your taxes in 2018 or 2019, or if your income isn’t high enough to file but receive social security
- Adjusted Gross income (Taxable Income) less than
- <$99,000 single
- <$136,500 head of household
- <$190,000 married
How Much is it?
- Up to $1,200: Single
- Up to $2,400: Married
- $500 Credit for each child under 17 (people 17 to 23 who are claimed as a dependent will not receive a check)
To receive the full amount your adjusted gross income must be less than
- <$75,000 single
- <115,500 head of household
- <$150,000 married
If your adjusted gross income is between
- $75,000 – 99,000 single
- $115,500 – $136,500 head of household
- $150,000 – $190,000 married
Then payments will begin decreasing $5 for every $100 over the threshold up until the cap where you will no longer receive a stimulus check.
Which Tax Return Year is Eligibility Determined By?
If you have already filed your 2019 tax return it will be based on 2019’s taxable income. However, if you haven’t yet, it will be based off of 2018’s taxable income.
So if you made under the threshold both years or over the cap both years, when you file your taxes won’t matter as you will receive the same amount (either full or nothing, respectively).
However, if you haven’t filed your 2019 taxes yet (which remember you have until July 15th this year) AND had a difference in taxable income between 2018 and 2019 then it may make sense to be strategic when you file your 2019 taxes.
For example, if your taxable income is less in 2018 it may make sense to wait until you file your taxes. However, if your 2019 taxable income is less than your 2018 income it may make sense to expedite when you file your taxes.
When Do I Receive My Check?
This is currently unknown at this point in time. There are many projections but as of right now, there is no set date on when we will be receiving these checks. Most are saying some time around the middle of April.
How Do I Receive My Check?
Direct deposit as long as you have this set up with the IRS. If you don’t you will recieve your check in the mail at the address you have on file with the IRS. So it’s important to make sure your information is up to date prior to the checks being sent out.
Will I Need to Pay Back the Money?
No. You do not need to ever pay this money back as this is a 2020 tax credit not a loan.
Will the Check Affect my Taxes Next Year?
No. This money will not be considered taxable income, and you will file as you normally would.
However, if you didn’t qualify for the stimulus check because you made over the cap in 2018 and 2019 but in 2020 due to potential hardship made under the cap then you will receive this money as a tax credit when you file your 2020 taxes.
Can I Deny It?
You are unable to deny it, but feel free to use it to donate or pay forward if you do not need/want the money.
I know that’s a lot of information, but it’s confusing and there is more interpretation of this law coming out everyday. I plan to update this article if anything changes. So let’s move on to what to do with this money.
What Should I Do With My Check??
To start, this money should first be used for necessities. Food, shelter, utilities, and general well being. Once this is covered or you already have your finances secured, you can begin to explore uses of this money.
Pay off Debt?
After you feel secure in your finances to cover your basic necessities for at least a few months. Then I believe it’s the time to think about using the money to begin to get back on track or continue to pay off debt. There is going to be a lot of debt accumulation during this time and staying on top of your debt now is going to be important for staying on top of your finances once all of this ends.
However, the CARES act suspends federal student loan payments and interest accruement until September 30th. So no need to think about paying these back at this point in time. Not paying, also will not affect your credit score.
Also, mortgages backed by federally controlled lenders can be delayed up to a year but require a call to your loan service provider to request a pause in repayment for 90 days. No questions asked and no penalties/additional interest will be accrued. This can be performed 4 times but must be re-initiated again at the end of the 90 day period. (Many private lenders are offering relief as well, so a call is likely warranted for anyone in need of a delay in mortgage repayment)
The CARES act does very little for Auto loans or Credit Card debt and these types of debts can continue to accrue payment or result in possible repossession of your vehicle. However, many lenders are still offering relief from payment. So again a call is warranted if you are in hardship. But, they are not required by law to oblige.
So it’s important to prioritize which debts are the most essential to continue to pay off and which can be delayed.
Save It?
If your necessities are met and your debt situation is under control, the next plan should be to simply save the money in a high yield savings account in case of emergency.
However, if you are someone who already has a fairly large emergency fund covering 3-6 months of expenses then this likely is not necessary.
Invest it?
If you are receiving your check from a position of financial power and security, then likely the next option should be to invest it into the stock market while the market is low. It’s helping the economy and likely will yield high returns in the future.
Spend It?
It is your money to do as you please with, so if there is a purchase that you were looking to make, this money could be used for this. However, I would say that you should not feel obligated to spend this check just for the sake of boosting the economy. So I wouldn’t spend it just to spend it.
If you do feel that you want to do your part for the economy, I would suggest using it to buy at local businesses as these are likely the places hit hardest by this recent downturn.
How I Plan to Use My Check
As I have recently been building up my savings account more than normal as I have been saving to purchase some real estate, I am now using this money as my extended emergency fund in case I do lose my job in the future or can’t find another contract.
Right now, I have roughly 5 months of expenses saved up. Likely closer to 6 or 7 with how little I have been spending in quarantine. So I feel relatively protected, so my likely strategy will be to take the money and invest it. I can help boost the economy and get some high ROI’s in the future.
But, this is just my plan. Your own plan should be based on your unique circumstances and your own risk tolerance.
Conclusion
Overall, this stimulus check is confusing so making sure your information is correct and up to date. Even the above is likely to change as there have already been some suggested amendments. I will update the above as these changes come in.
At the end of the day, the checks aren’t life changing money, but they will help the people in need and offer some of us with more financial stability the unique situation to decide how best to spend this unexpected income boost.
It’s you money, so make sure to use it how you see fit. Not how anyone else says.
As always, feel free to comment below with any questions or if you have unique questions feel free to contact me directly at fiscaltherapist1@gmail.com
