COVID-19 Stimulus checks: everything you need to know (and how not to blow it)

After weeks of negotiation, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on Friday, March 27. Among other benefits, the CARES Act will provide every eligible American taxpayer with a single payment of up to $1,200 ($2,400 for married couples) plus $500 per child. Those taxpayers whose adjusted gross incomes exceed certain thresholds may receive less or nothing. We took a deep dive into the CARES act to see how it will impact our Think Save Retire audience.

Stimulus Check Calculator 2020

What is the CARES Act?

The CARES Act is a stimulus bill that provides support for people in every state of the United States to help recover from the economic injury that has resulted from the coronavirus pandemic that is making its way around the globe.

The act is intended to provide financial support to both individuals and businesses that are being impacted by the shutdown of businesses, lay-offs, and other drop-offs in economic activity currently taking place across the country.

This bill has an estimated total value of $2 trillion and is designed to help cushion the direct and indirect impact of the coronavirus pandemic on people across the country.

What does the stimulus bill provide?

• $1,200 per individual, $2,400 for married couples who file joint returns
• $500 per child
• Expansion of unemployment benefits to include part-time workers, gig workers, and self-employed individuals
• An additional 13 weeks of unemployment benefits for those who get laid off
• Extra $600 in unemployment benefits

In addition to these benefits for individuals, the CARES Act also provides several benefits for businesses including low-interest SBA loans for businesses to help them avoid laying off workers and an SBA loan forgiveness program for loan recipients who use their loan proceeds for certain purposes.

How much you’ll get paid + where the stimulus check comes from

The individual payments provided by the CARES Act are structured as an advance on a new tax credit that’s being awarded against 2020 income. But, rather than making taxpayers wait until they file their 2020 taxes to get their credit, the government is sending out checks now based on taxpayers’ anticipated 2020 income.

In other words, the money you’ll be getting for your COVID stimulus check is money that you would’ve gotten back when you file your 2020 tax returns a year from now, anyway. But, instead of making you wait to use the credit, the federal government is paying out that money now as an advance on the tax credit.

• The bill provides for payments of $1,200 for individuals who earn up to $75,000 in adjusted gross income. Once individuals exceed this threshold, their check will be $5 for each additional $100 they earn. (Completely phase-out for individuals who earn $99,000 or more.)
• Under the bill, married couples filing joint returns will receive checks for $2,400 if they make up to $150,000 per year. Checks will also fall $5 for every $100 they earn above that level. (Completely phase-out for couples who earn $198,000 or more.)
• Families who file as heads of household will also receive $1,200, but their phase-outs (also $5 less for every $100 in AGI) will start at $112,500.
• Families or individuals with children under age 17 will receive an extra $500 per child. (These payments also phase out for taxpayers whose income exceeds maximum thresholds.)

These payments are structured as straight-up stimulus checks—everyone who qualifies will get one, whether they get laid off or not. People should be receiving their checks within about 3 weeks. And, there’s just one payment; not two, as was floated during previous negotiations.

It’s also important to note that these check amounts are based on an individual’s or family’s adjusted gross income, not their gross revenue. If you aren’t sure of your adjusted gross income, check your most recent tax return to see how much you may be eligible for—your 2019 returns if you’ve completed them; 2018 if you haven’t.

If your payment is partially phased out and your income actually falls drastically in 2020, you may be entitled to a larger payment. However, you won’t be able to get the rest until you file your taxes for this year.

What you should do with your stimulus check

When you get your stimulus check, you may be wondering what to do with the money. The best option will obviously depend on your situation, but here are a few options:

• Deposit the check and keep the money in case you need it later
• Cash your check and hold onto physical cash in case you may need it to cover expenses without a credit card
• Pay your rent
• Stick the money in a savings account to keep it separate from other money you have coming in
• Maybe pay down a credit card to free up your balance in case you need it later

While you may want to hold on to the money from your check, you won’t need to worry about getting hit with taxes on the money later. Since they’re being structured as tax credits, these payments will be tax-free.

Mistakes to avoid with your stimulus check

Unlike the stimulus checks sent out in 2008 under George W. Bush, these checks are called stimulus checks but don't seem intended to actually stimulate the economy. Rather, these payments may more accurately be described as relief checks because basically every American taxpayer has been impacted by the pandemic.

What this means is that the government’s intention in distributing these funds is NOT for people to just go out and spend to stimulate the economy. Instead, the funds are better used for things like paying bills that are still due, since huge numbers of Americans have seen their incomes drop very quickly as a result of the coronavirus pandemic.

While there are some good things you can do with your check, there are also some things you probably want to avoid, since no one knows how bad things are going to get:

• It’s probably a bad idea to just spend the money from your check senselessly. I mean, unless you’re swimming in cash. Then, have fun.
• Paying off debt can sound enticing, but you may need the cash if you’re impacted by lay-offs. Unless you’re paying off a revolving credit account like a credit card, you may not be able to access the money later if you need it.
• Putting the money in an illiquid investment like an IRA or a real estate deal can make it difficult or impossible to access the money later if you need it.

If you already have ample cash to cover your expenses—enough to cover expenses even if things get worse, then you might consider investing or spending the money. There will definitely be some great deals to be had. But, at this point, no one knows how bad things are going to get. The smart thing is probably to just hold onto the money or use it to pay your bills.

Another thing that you might consider, if you already have enough saved up to see you through these difficult times, is donating a part of your check to a worthy cause that is supporting medical workers, people infected with the virus, or people whose finances don’t put them in as good a position to weather this economic downturn.

While there are a lot of things that can sound tempting with these checks—even very selfless things like donating the money—it’s important to remember that the Federal Reserve and other agencies are still expecting 30% unemployment before all this is done - almost 10 times the stated rate from 3 weeks ago. This means that things could get BAD for the U.S. economy, so people should really think twice about spending this money unless they have bills to pay or already have adequate cash and want to support a worthy cause.

Another way the COVID-19 bill helps individual Americans: Expanding unemployment

The big headline-grabber about this bill is the stimulus checks, but it actually does quite a bit more for individuals—especially those who are directly impacted by the economic fall-out from coronavirus and end up getting laid-off.

Most major projects now indicate that the unemployment rate in the U.S. will likely rise tremendously over the coming weeks and months. Just two weeks ago, more than 3 million unemployment claims were filed, and that’s probably just the beginning.

To help provide relief to those who are laid-off, the CARES Act is expanding who is covered by unemployment benefits. Historically, only full-time W-2 employees who lose their jobs are covered by unemployment. However, this bill will expand those benefits to also cover part-time workers, gig workers, and self-employed individuals whose income disappears as a result of the COVID-19 outbreak.

In addition to expanding coverage for unemployment benefits, the bill will also increase benefits by providing an additional $600 per week on top of the weekly benefit provided by individual states. Lastly, the bill will extend benefits for an additional 13 weeks on top of the maximum provided by individual states.

What’s in the 2020 stimulus bill for businesses and investors?

To its credit, the CARES Act does quite a bit to provide relief for consumers who are feeling the impact of the coronavirus pandemic—especially those who are laid off.

But, the bill also provides a number of incentives for businesses. The primary goal for a lot of these benefits is to encourage businesses to not lay-off employees, hopefully curtailing wholesale unemployment across the country.

Here’s what the act does for businesses and investors:

• Small business owners can qualify for Small Business Administration (SBA) loans including those who haven’t been in business for 2 years or meet revenue thresholds
• SBA loans starting at 3.75% for businesses (2.75% for non-profits) that are impacted by the pandemic. Businesses can borrow up to 2.5 times their monthly qualifying expenses (payroll and fixed debt payments). These loans are intended to dissuade businesses from laying off employees and can be used to pay payroll and utilities.
• An SBA loan forgiveness program for borrowers who use their loan proceeds for qualifying purposes including payroll, utilities, and payments on fixed debt
• Expanded deductions that real estate investors can use for things like depreciation to offset gains on other investments (like the stock market)

Another important note about these programs is that the CARES Act helps eliminate a lot of red tape that can hold up SBA loans under normal circumstances. Unlike most SBA loans, these loans Paycheck Protection Program (PPP) are actually being issued directly by SBA to business owners.

Typically, SBA loans are issued by banks around the country and then guaranteed (in part) by the SBA. However, to expedite the availability of funding for businesses, the SBA is issuing these loans directly and waiving guarantee fees.

The COVID-19 Stimulus Bill Big Picture

Passing any kind of law is a deeply political process that involves hemming, hawwing, and negotiation. However, in this case the federal government has moved *relatively* quickly to pass legislation to help both individuals and businesses deal with the fall-out of this global pandemic.

The government is providing direct cash payments to individuals whose incomes fall under certain thresholds. In addition to these stimulus checks, the government is also expanding and extending unemployment benefits for those who are laid off or whose income drops as a result of coronavirus, as well as providing benefits for businesses in an effort to curb lay-offs and prevent widespread unemployment.

What else do you want to know about the COVID-19 Stimulus Bill? Share your thoughts and questions in the comments!