What is a stimulus check?
A stimulus check is a form of fiscal policy used by the government to try and influence the economic conditions of a country.
The government itself enacts fiscal policy. It can be used in several ways, such as increasing or decreasing government spending on projects, increasing or decreasing tax rates, or using contractionary fiscal policy to cool off an economy.
The United States government issues a stimulus check to a taxpayer. Stimulus checks are designed to boost the economy by providing some spending money to people.
A stimulus check can be part of a broader federal stimulus package intended to stimulate the economy, as was the case with the stimulus payments included in the 2020 CARES Act and the 2021 American Rescue Plan.
The first stimulus check was authorized by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
An additional stimulus check was authorized in December of 2020, and a third stimulus check of up to $1,400 per adult and dependent was made available by the American Rescue Plan Act on March 11, 2021.
Stimulus checks are especially effective during recessions when there is lower demand for goods and services.
Stimulus checks impact
The government can reduce taxes to boost consumption and saving among businesses and consumers. This increase in spending can help to stimulate the economy during a recession. Additionally, stimulus checks are generally targeted towards those more likely to spend the money, such as lower-income households, which can also help jumpstart economic growth.
Stimulus checks can encourage businesses and individuals to invest or spend more with their higher disposable income, boosting consumption.
Stimulus checks in practice
Previously, the U.S. government used stimulus checks during the 2008 Global Financial Crisis to help reduce unemployment and increase GDP.
The government distributed the stimulus checks to keep the unemployment rate below 8%. The goal was to help those Americans deeply impacted by the financial crisis. As a result, many people could get back on their feet and improve their standard of living.
It is uncertain how much of the effect of the stimulus check can be attributed to it, though it may play a role in reducing unemployment and increasing GDP.
In 2020, the United States government had to send out stimulus checks to help combat the COVID-19 outbreak. The government sent out the checks to individuals who earned at least $3,000 during the previous year. The total amount of stimulus checks sent out by the U.S. was $2 trillion.
Are stimulus checks effective?
Stimulus checks are given out with the assumption that they will be used for spending or to encourage consumers to spend more.
Since the ultimate goal of any stimulus package is to restore economic stability, inspire consumer confidence, and increase spending, stimulus checks have to be evaluated on that criteria and compared to other forms of stimulus.
Many economists question whether stimulus payments are effective and, ultimately, whether they result in a return that outweighs the costs.
Stimulus check alternatives
Governments have several alternatives to stimulus checks that may be more effective. For example, they can provide targeted tax relief or increase government spending in specific areas.
Additionally, governments can offer subsidies for businesses or tax credits for consumers. By enacting any of these alternatives, governments can help stimulate the economy more effectively than issuing stimulus checks.
Other options that are potentially more effective than stimulus checks include:
- Allowing tax deferrals
- Loan deferrals
- Increasing spending on government projects
- Supporting specific hard-hit industries
What is a Coronavirus stimulus check?
A stimulus check – including whether you get one and how much your stimulus check is based partially on your adjusted gross income on your federal tax return.
The United States government enacted a measure in March 2020 to give Americans stimulus money to alleviate economic troubles caused by the Coronavirus outbreak.
The CARES Act included provisions for tax refunds of up to $1,200 per adult and $500 per qualified kid. The refund amount decreases as income exceeds $75,000 for individuals and $150,000 for joint filers.
In December 2020, the second wave of $600 stimulus payments was distributed. The American Rescue Plan Act was then signed into law in March 2021. It offered $1,400 direct stimulus grants to households earning less than $75,000 per year.
Can a stimulus check affect my tax refund?
The stimulus check is a tax credit, which reduces your tax bill on a dollar-for-dollar basis. You usually can’t claim a tax credit until you file your taxes since you don’t know what you owe until the year is over.
For example, suppose you filed a 2019 tax return, and it wasn’t processed in time to issue your first stimulus check by December 31, 2020. In that case, you can claim your first stimulus check as the Recovery Rebate Tax Credit on your 2020 tax return or use GetCTC.org if you don’t have a filing requirement. The fastest way to receive payment is through direct deposit into your bank account.
Is the money from the stimulus check taxable?
Stimulus checks are not taxable, meaning you’ll get the total amount. Your check will not be lowered if you owe back taxes or have defaulted on student loans. However, if you owe back child support and the government has been notified, the money may be deducted from your stimulus check.
Additionally, private debt collectors may be allowed to deduct funds from your stimulus check. It is advisable to consult your state’s laws to determine whether this is permitted, as some states have enacted emergency measures to prevent this.
If you are concerned about this money being deducted from your stimulus check, the National Consumer Law Center recommends consumers “watch their accounts and consider withdrawing the funds immediately upon receipt.”
What happens if I don’t have a bank account?
If you do not have a bank account, you will get a paper check at the address indicated on your tax return.
Opening a bank account or using a prepaid debit card are alternatives to receiving a paper check. After receiving a card, you may need to contact the employer directly to obtain the account and routing details required for direct deposit.
Additionally, you may utilize payment applications such as CashApp, Venmo, or PayPal.
The IRS should’ve automatically sent your payment if you’ve filed a tax return for the current year.