The effects of the novel Coronavirus COVID-19 across the globe have been devastating, to say the least. Quarantines and shelter in place orders have been put in place across the country and the globe. Millions of people are beginning to feel the financial impact on top of the stress and anxiety from fear of contracting the virus.
Employees have been let go, furloughed or have had their hours and wages cut. Businesses are struggling. This is a difficult time for many. In the United States, the government has established an initial $2.2 trillion stimulus bill to help individuals and families dealing with this crisis and this could include you.
Let's discuss the details of the bill and how best to allocate the money when you receive it.
What is the COVID19 stimulus bill?
The COVID19 stimulus bill is tied to a $2 trillion stimulus package. To date, it is the largest emergency aid package in U.S. history. In response to the coronavirus pandemic, it's designed to provide cash and other assistance for individuals, families, and businesses in America. It is also being referred to as the economic impact payment.
Who qualifies for the stimulus check payments?
Per the IRS, eligible taxpayers who filed either a 2018 or 2019 tax return will qualify to receive the COVID19 stimulus payment. The payments are as follows:
- Individuals will receive up to $1,200 and married couples will receive up to $2,400.
- Parents with children under the age of 17 will receive $500 for each qualifying child.
In addition, it's important to note:
- Individuals with adjusted gross incomes up to $75,000 and married couples with adjusted gross incomes up to to $150,000 filing joint returns will receive the full payment.
- Individuals with income above those amounts will receive reduced payments.
- However, individuals with incomes exceeding $99,000 and joint filers with incomes exceed $198,000 for joint filers with no children are not eligible.
- Social Security recipients and railroad retirees who are otherwise not required to file a tax return are also eligible and will not be required to file a return.
The IRS will be sending out payments to those who are eligible. Eligibility will be based on the information the IRS already has on file if you filed a 2018 or 2019 tax return. If the IRS does not have the necessary information, you will be able to submit it online.
You can get specific details on eligibility and payments on the IRS Coronavirus webpage: https://www.irs.gov/coronavirus. You can also check out this article that answers the most common eligibility questions people currently have.
Will you have to pay taxes on your stimulus payment?
This is a common question and the answer is no. You will not have to pay taxes on your stimulus payment. It is not the loan and you won't owe the IRS any money for this payment. The IRS will also not be garnishing the stimulus payment for any back taxes owed. For specific details, visit the IRS.gov webpage on economic impact payments also known as stimulus payments.
What to do with your stimulus check
Before you receive your stimulus payment, it's a good idea for you to proactively create a plan. Having a plan in place will help you stretch your dollars as far as possible. This is key especially if you are experiencing uncertainty with your income right now or worried about job security.
Here are some tips on what to do with your stimulus check when it arrives.
1. Cover your core-essentials
In a time like this, your main priority should be on your core essentials. These essentials are:
- Safe housing
- Core utilities e.g. electricity, water, internet, etc
- Transportation to get to work or to pick up medicines, food, and other household essentials
There is an opportunity to stretch your dollars, especially in the food and household needs category. For instance, you can meal plan, switch from brand names to generic names and also determine which items you can do without.
2. Catch up on your bills
If you've fallen behind on your bills and you have cash left over after covering your core essentials, you can allocate your stimulus payment to catch up on past due bills. A good idea is to prioritize your top bills first. For instance, your rent, mortgage, insurance coverage, etc.
For many, the stimulus payment may not cover all bills and so you may find yourself needing to leverage debt to pay for essentials and other bills. That being said, you can still be intentional about your spending and you can still create a repayment priority plan for when things get back to normal. Keep yourself and your family safe and fed. You will recover and you will rebuild.
3. Establish emergency savings
If you are up to date to date on your bills, have your essentials covered and are still earning an income then it's a good idea to save your stimulus payment. A good way to do this is to establish or add to your emergency fund.
Putting this money aside will help you create a buffer in the event you experience a job loss, have your income cut or face an unexpected life occurrence.
4. Invest for the long-term
Essentials in place, bills up-to-date, emergency fund fully stocked? Another idea could be to invest your stimulus payment.
Keep in mind, that the stock market is especially volatile right now and is experiencing declines. While there may be the opportunity to buy low, no one can predict how low the stock market could potentially go over the next few months. Especially as we get through this season and step into what will potentially be a difficult economic recovery.
So if you do choose to invest, be sure you are clear on your objectives and risk tolerance. It's also very important you are investing for the long-term. Yes the markets will recover, but it could take several months or even several years.
Stay mindful of your spending
In this season it's all about doing your best to keep yourself and your family safe and well. Stay mindful of your non-essential spending, stretch your dollars and put aside any spare money if you are able.
Despite the circumstances and the negative daily news, one thing to keep in mind is that we will come out of this as a country and as a world. In the meantime, focus on doing what you can control.