What Should You Do With Your Stimulus Check?

For many Americans, the American Rescue Plan — a $1.9 trillion economic stimulus package passed by the government on March 11 — will provide them with another stimulus check — this time for $1,400 — to help ease the impact of the coronavirus pandemic.

An illustration of a check for $1,400, made out to you.

While $1,400 can only go so far, every dollar does help. Here’s what you need to know about the policy and advice on the best way to use it, depending on your financial situation.

Stimulus check FAQs

Who’s eligible for a stimulus check?

It depends on your annual income. If you make $75,000 or less as a single tax filer ($150,000 or less if you’re married filing jointly, and $112,500 or less if you file as head of household), you’ll get the full $1,400. Families will get an extra $1,400 for each person they claim as a dependent on their taxes. That can include, this time, college students and older relatives, plus babies born any time this year. (If your baby is born later in 2021, you’ll get your payment after you file your taxes next year.)

If you make more than the limit, you could get a reduced payment. But if you make more than $80,000 ($160,000 if you’re married filing jointly, and $120,000 if you file as head of household), you won’t be eligible for any payment.

Which year’s income are they looking at?

The most recent tax return they have on file for you. If you’ve already filed your 2020 taxes, they’ll use your 2020 income. If not, they’ll use your 2019 income.

If you’re newly eligible for the payment based on your 2020 income (because you made less last year than you did in 2019), and you haven’t filed your 2020 taxes yet, that’s OK — the gov will make extra payments for people like you through September.

If you’re in the opposite situation (you made too much in 2020 to be eligible, but the gov doesn’t know that because you haven’t filed your 2020 taxes yet), they won’t ask for any money back.

Do you have to pay taxes on it?

Nope. It’s effectively just money in your pocket.

How and when will the payments come?

The IRS is expected to start sending checks ASAP, as they did last time. If they have your bank account info (like if you’ve given it to them when you filed taxes in the past), they’ll send you the money via direct deposit. If they don’t have your bank info on file, they’ll mail you a check. That will take longer than the direct deposits. You can check on the status of your payment using the IRS’s online tool here.

How to use the money

What’s the best way to use that stimulus check, if you get one? That’s a good question, and our money coaches’ advice depends on your financial situation right now.

If you or a loved one need it to pay the bills

Use it. That’s what it’s for.

But before you use it — especially if you lost your job — see if you can get those bills you owe reduced. A lot of banks and credit card providers, in particular, have been very understanding this past year. They might be willing to put you on an adjusted payment plan or pause your payments if you ask.

If you don’t need to use it right away

Consider giving yourself permission to spend a little bit of it — maybe 10–15% — on something that will make your life easier or happier during these stressful times, like a couple of nights of takeout from a local restaurant. If you can, you might also consider donating some of it to a non-profit to help others affected by the pandemic.

If you believe your income is in jeopardy

Save the rest. Put it in a liquid (easy to access), safe (insured) bank account.

If you believe your income is safe, and you have debt with interest rates of 10% or more

Use it to pay off some of that debt. It might feel safer to save it, but think about it this way: Every single day that your debt goes unpaid, it’s costing you a lot of money in interest. You can use your credit card again later if something does happen to your income — but you might as well cut down on the amount of compound interest you’re accumulating between now and then.

If all else is OK, and all your debt has interest rates less than 10% (or if you have no debt)

Save it. We do typically say that you should try to pay off debt with interest rates between 5% and 10%, too, but there’s a lot of uncertainty in the world right now. Let this be the start of (or an addition to) your emergency fund.

If you have no debt and a full-up emergency fund

You are fortunate in these times. If you have a strong financial foundation in place, we recommend investing the money, spread across several deposits. This is called dollar-cost averaging, and it means you won’t have to guess about when the best time might be. You’ll get into the markets on some up days and some down days, and you’ll pay an average price over time.

 

Article published at Ellevest.com BY RACHEL SANBORN LAWRENCE
MARCH 11, 2021

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