FAQs About Your Stimulus Check Answered

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published 6 April 2020

Ryan Ermey: We told you how to spend your stimulus check last week, which may have raised the question, "When am I getting this thing, and how much money is it?" Okay, it raised a lot of questions. Kiplinger.com tax editor Rocky Mengle rejoins the show to answer all of these and more in our main segment.

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Sandy Block: It is right in my lane and in fact I'm working on a story about this right now and what Congress did -- and they did this in 2008 as well. They waived the requirement to take minimum distributions from your IRA this year. If you're 72 or older, you're normally required to take a specific amount out of your IRA every year. A lot of people are doing that anyway because they need the money, and I'm writing about that too. But if you're fortunate enough that you don't need the money, it can be very painful. A lot of retirees do not want to take money out of their investment portfolio when the, during a bear market, they'd rather let it leave, let it recover. That's the point of this waiver is to say, "Okay, take this year off. You do not have to take this money out if you need it, you can let it just sit there and grow."

Sandy Block: So that basically gives you a little breathing room if you don't need the money. A lot of our readers do care about this. Now, one point that Eddie brings up is even though you can postpone taking money out, you might not want to, because basically the amount that you have to withdraw is based on the balance in your portfolio at the end of the year. So that means eventually you're going to have to take money out and the withdrawal could be bigger if your portfolio, if somehow your portfolio recovers and grows.

Sandy Block: The other thing he points out quite rightly is that taxes are a very... you'd have to pay taxes on the money when it comes out, which is why people who don't need the money hate RMDs. But tax rates are very low right now. We were looking at just massive, massive deficits, political change. Tax rates could go up in the future. So if you're worried about that, you might actually want to take some money out, maybe give it to your out of work kids or reinvest it, or something, or give it to charity as we discussed. But you might want to take the money out. But because of this waiver, if you're 72 or older, you do not have to.

Ryan Ermey: Right and just as a reminder for folks, the RMDs are calculated based on the recipient's life expectancy and the value of retirement account balances at the end of the previous year, which means that, theoretically, your 2020 RMD, the one that you take in 2020 would be based on the account values on December 31st, 2019, when the market was quite a bit higher than it is now. So on top of those losses, and this is... I'm quoting here from a piece that we'll put in the show notes by our colleague Catherine Siskos. The RMD adds another in the form of a higher income tax bill, which is often as you point out, Sandy, a sore point for retirees with pensions or other sources of income because it could push you, theoretically, into a higher tax bracket.

Sandy Block: That's right, and the other thing that we'll be talking about in this story I'm writing right now is strategies for retirees who do need money now and do not want to sell stocks at a great loss. We saw this in 2008. Some people inflicted permanent damage on their portfolios because they were forced to take, to sell stocks and funds at a steep loss just because they didn't have the money. So we're looking into that as well. But if you're fortunate enough that you don't need the money, again, you do get a breather this year.

Ryan Ermey: Yeah, really and until then, there you have it, Eddie. Thank you for writing in on Twitter. You can write any of your questions for us into our email addresses, into the podcast email address. You can hit us up on Facebook. Wherever you have questions for us, we will try to have answers for you. Coming up, Rocky Mengle answers frequently asked questions surrounding your stimulus check. Don't go anywhere.

Ryan Ermey: Hey folks, a quick note here before we get into the next segment. Since we recorded our interview with Rocky, some outlets have reported based on an internal IRS report that direct deposits are expected April 14th. The situation is still very much fluid, however, and when you get your stimulus check will depend on whether you're getting it via mail or direct deposit, among other factors. So listen on for more details about your stimulus check and follow all of Rocky's coverage of the situation on Kiplinger.com. Enjoy the interview.

Rocky Mengle: You're going to get one check. I know that there were some other proposals out there that called for multiple checks. But the Cares Act, which is the law that was signed recently that allows for these stimulus checks only says you're going to get one. Now the amount is based on three things: your filing status, the number of qualifying children, which is basically your children who are 16 years old or younger, and your adjusted gross income. The IRS will look to your 2019 tax return for that information if you've already filed it. If you haven't filed yet, they'll look at your 2018 tax return, and if you haven't filed either those returns yet, or just don't, then the law allows the IRS to look at some information from the social security administration. So having said that, everybody starts with $1,200, in terms of the amount of your check.

Rocky Mengle: If you're married and filing a joint return and that gets bumped up to a $2,400. Then you get an extra $500 for every qualifying child that you have. But then, so that people with higher incomes get less, or in some cases, don't get anything, in terms of a stimulus check, the amount is reduced by 5%, basically 5 cents for every dollar over these certain thresholds. So for a single filer or someone who's married and filing a separate return, that threshold is $75,000. For joint filers, that threshold is $150,000, and if you're filing as a head of household, basically like a single parent, it's $112,500. So if your adjusted gross income is less than that amount, you're going to get the full amount of your check and if it's higher than that, then it will gradually be reduced down to eventually to zero.

Rocky Mengle: Yeah. The Trump administration is saying that direct deposit payment should start in mid April. Now there's a lot of people that's saying that's not realistic. The IRS is short-staffed right now, as a lot of businesses are and other federal agencies because of the Coronavirus crisis. People look back to 2008 when the last time we sent out similar stimulus checks and it took months to get the first set of payments out. So let's wait and see. Direct deposit will be faster. I think that's a given, but whether or not they start sending payments by mid April is still to be determined.

Rocky Mengle: ... the Kiplinger.com website. We have a Stimulus Check Calculator where you can go in and plug in your information from both your 2018 return and your 2019 return and see which one will give you more and you'll want to go with a higher amount. But yeah, let me just make a couple points here. First, there are actually two things going on in the Cares Act. There's a tax credit for the 2020 tax year, and that amount will be based on your 2020 filing status, qualifying children in AGI. But then there's also an advanced payment of that credit and that's your stimulus check. That's what you're going to get in the mail. So, that's number one. Number two, as we mentioned, the IRS will use your 2019 return if they have it.

Rocky Mengle: Otherwise, they'll use your 2018 return. Number three, I guess Sandy mentioned also that the normal deadline for filing your 2019 return has been pushed back from April 1st of this year to July 15th. So you can wait three more months to file your 2019 return if you want. Then the Cares Act tells us what will happen if the stimulus check is less than the 2020 credit. In that case, you'll get the difference back when you file your 2020 tax return next year. But the Cares Act does not tell us what happens if the stimulus check is more than the 2020 credit. So we don't know for sure if you'll get to keep that difference. So because of all those things, that opens up some opportunity there to boost your stimulus check based on whether or not you file now, if you haven't already, or wait until after your check comes, or wait up until the July 15th deadline.

Rocky Mengle: So some examples as you mentioned, let's say your income increased significantly in 2019. That might be a situation where you don't want to file your 2019 return yet if you haven't already, because that extra income might push you into the phase out territory, or even result in you not getting any check at all. On the other hand, let's say you got married in 2019 and you might want to file your 2019 return now so that you can take advantage of the higher amounts allowed for joint filers, as particularly if you and your spouse, the income levels are kind of far apart. So there are opportunities there. Get on the Kiplinger.com website and use that calculator to run the numbers both ways.

Rocky Mengle: Well we, again, we don't know that for sure. Again, if your stimulus check is higher than the 2020 credit amount, there's a chance that the IRS will come back and say, "Hey, we want that money back. You got more than what you were supposed to get." The Cares Act authorizes the IRS to adopt some rules and regulations that are to avoid allowing multiple credits, or rebates and taxpayers. So they might try to use that authority to claw back that amount. We just don't know. We're waiting for guidance from the IRS on that. Just one of those areas that hasn't... questions that hasn't been answered yet.

Sandy Block: I imagine, Rocky, that given that we are almost certainly going into a recession and economic problems that we're having, I think it's pretty unlikely that very many people are going to end up having to pay this money back. It just seems to me that, first of all, it would look terrible and I just don't know that, that many more people would make that much more money in 2020, this year than they did last year.

Ryan Ermey: Well no matter what, I know that you and Sandy have been on top of this as this story has been changing practically every day with new information. We have all kinds of fantastic content about this up on kiplinger.com. We mentioned the calculator, we will have that in the show notes. Rocky also has answers to all of your frequently asked questions about the stimulus, about the checks that you'll be receiving. That is up on kiplinger.com as well, that will be in the show notes and all of our tax content will be up to the date on Kiplinger.com, thanks to Rocky's and Sandy's efforts among others. So Rocky, thank you so much for coming on. We really appreciate having you.

Ryan Ermey: ... the idea of being, do you want to make this money move now, or do you want to wait, given that the Coronavirus pandemic has put a lot of financial things into a proverbial holding pattern. So one thing that I wanted to talk about, and this is something that our colleague Emma Patch addressed in the May issue of Kiplinger's Personal Finance is should you book an airline ticket now for a future trip? So a lot of these major airlines, American, Delta, United, Jet Blue, they've all issued statements that for flights booked before March 31st, they'll wave any sort of change fee if you have to change the dates on your trip.

Ryan Ermey: A number of them... this is, once again folks very... this could change by the time the podcast comes up, but a lot of them have extended this policy into April. So if you... and beyond, depending on where you look. So the advice here is to, if you're going to book something far off in advance, and you could do this right now for really, really cheap. I have a wedding coming up in June. I looked at flights -- D.C. to Boston were $100 bucks, which is cheap as hell. So you want to, theoretically, be able to lock in that kind of low fare. Hopefully, when all of this subsides, you'll be able to take a trip for cheap. So what you need to do is be sure to double check the terms of the airline's change policy, because as I said, these are shifting sands here.

Ryan Ermey: The other thing to do, and this is advice comes from Scott Keyes, a friend of the podcast -- Scott's Cheap Flights -- is that if you book something far out, you should wait until the very last second, 24 to 48 hours before your flight to cancel. The reason is because if the airline has to cancel the flight on you, and if, let's say I book my trip in June, and by then the pandemic is still at full force and travel is still grounded. If the airline cancels the flight, it typically offers a cash refund, if it can't book you or find you another option. If you cancel the flight, you usually are offered a travel credit instead. So you want to at least give the airline the opportunity to cancel so that you can get a full cash refund if should it be the case that you're not able to fly because no one's able to fly.

Ryan Ermey: That's the kind of key here. Be sure to read the policy. Pretty much all of them are offering a lot of flexibility. So if you have a surplus of cash, or at least some that you have already set aside for certain trips, it could be that you can just get a no switching fee, no nothing. You could always push it further out, or you could get a travel credit and sometimes in the case if they have to cancel it, you can be offered a travel credit greater than the price of your flight, sometimes a 20% premium. So this is worth looking into, worth doing if you have the cash to do it.

Sandy Block: ... part of the Cares Act that Rocky talked about in our last segment gives students with direct federal student loans, which I believe means you have had to taken it out in the last 10 years, they get a break. The payments and interest on those loans are suspended until September 30th. So there's no real reason to... and this is automatic, you don't have to do anything. Now people do have the option of paying principal on those loans. But honestly, I can't imagine why you would. If they're suspending interest, you're not getting any real benefit for paying principal and you might need that money, given the situation of the economy and people's jobs. I would conserve the cash. The one thing that I think people should do is check with their loan servicer to make sure that they do qualify for this suspension of payment, because you certainly wouldn't want to skip a payment and find out that you owe it.

Sandy Block: There are some kinds of loans that are not covered by this. These would be older loans that were backed by banks or private loans, which don't qualify at all, unfortunately. So I think the action to take if you have a federal student loan is to check with your servicer to make sure that you really are going to get suspended payments. Don't make payments because you don't have to because it's not going to hurt you to wait. Again, you may need the money. The other thing I would say, and I talked about this somewhere else recently, is this is probably not a good time to think about refinancing into a private loan because once you get, you might get a really good low rate on private loans.

Sandy Block: There are low rates available, but you will lose this kind of benefit. I suspect this will not be the last kind of relief we see for borrowers with federal student loans because we know that even before the bear market and the expected recession, a lot of these borrowers were struggling. So I think there could be more relief in the future. So watch this space and just enjoy the fact that you get a break on your student loan payments.

Sandy Block: I wouldn't, I mean like I said, I think the whole point of this is there's not a lot of... you can pay the principal at any time, right? You don't have to pay it now. The idea of paying principal early is that interest, there's less money for the interest to accrue on, but you're not paying interest. So I'm not quite sure where paying the principal gets you, unless you just like the idea of paying down the loan. But I don't think, and maybe someone would call me on this, but I'm doing the math here and I don't think there's really a mathematical reason to do that. Again, I think the whole point of this, and I think it's a good idea, is to free up cash to get to allow people... things are just so uncertain right now. Why spend money that you don't have to?

Ryan Ermey: Hey, I'm with you there. Look, this is the green light for me. I'm calling them as soon as I get off the phone with you. I'm calling my loan servicer and asking, "Can I not pay please?" So there you have it folks. So yeah, consider buying airline tickets now. But of course, read the new policies set forth by whatever airline you're considering booking on. As for the student loans, call ahead and see the policy on that as well. But pretty much go ahead and call your servicer up and go ahead and skip paying them while interest isn't accrued. That'll wrap it up for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit Kiplinger.com/links/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at podcast@kiplinger.com. If you like the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.

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Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.