Would You Get a "Targeted" Stimulus Check?

The latest battle over the next round of stimulus checks is whether they should be "targeted" to people who need them the most. President Biden's $1.9 trillion stimulus package includes a third round of $1,400 stimulus checks ($2,800 for married couples filing a joint return), but his plan doesn't call for changes to the phase-out rules that deny payments to wealthier Americans. That's a problem for many Republican lawmakers…and for a few key Democrats as well.

Although some details are missing, Biden's stimulus check plan is similar to the CASH Act proposal that was passed by the Democrat-controlled House in December but blocked in the Senate by Republicans who control that chamber at the time (Democrats now control the Senate). The primary reason cited by Republicans for blocking the CASH Act was that it would have sent thousands of dollars to people who didn't really need the money.

Sen. Mitch McConnell (R-Ky.) noted at the time that "a family of five where the parents earn $250,000 and have not seen any income loss" during the pandemic would still receive a $5,000 stimulus check under the CASH Act. He later said that any additional stimulus relief "should be smart and targeted, not just an imprecise deluge of borrowed money that would direct huge sums toward those who don't need it." Plus, a group of moderate Republican senators have asked President Biden to consider another round of $1,000 stimulus checks "for those families who need assistance the most." So, there's clearly some support among Republicans for a third stimulus check if the payments are limited to Americans who are suffering the most from the pandemic.

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On the other side of the aisle, there are some moderate Democrats like Sen. Joe Manchin (D-W.Va.) who also want any additional stimulus relief to target those most in need. Manchin recently told CNN that he supports "helping people that need help, people that really can't make it, people that don't have a job." But he added that "it's time now to target where the money goes" and "make sure that people in need" get stimulus checks first.

President Biden, who came into office touting bipartisan cooperation, seems willing to at least consider targeted stimulus checks. Concerning his $1,400 stimulus check proposal, Biden said, "there's legitimate reason for people to say, 'Do you have the lines drawn the exact right way? Should it go to anybody making over X-number of dollars or why?' I'm open to negotiate those things."

So, since it's possible that any third-round stimulus check will be "targeted," let's take a look at how that might be done and what that may mean for you.

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How to Target Stimulus Checks

Let's assume that Congress and the president decide that targeting stimulus checks is the best way to go. There are three basic ways to do this:

• Create a bright line cut off for stimulus payments (i.e., no phase-out);
• Lower the phase-out threshold amounts; or
• Adjust the phase-out rate.

We can use the CASH Act model to illustrate these three approaches, since Biden's plan appears to be based on that bill. The CASH Act would have authorized a third-round stimulus check with a base amount of $1,400 per eligible American ($2,800 for married couples filing a joint return), plus an additional $1,400 for each dependent (regardless of age) in the family. The total amount would have then been phased-out at a rate of $1 for every $20 over the applicable threshold amount. So, some people with income above the threshold amount would get a partial payment. As with the first two rounds of stimulus payments, the CASH Act threshold amounts were $75,000 of adjusted gross income (AGI) for single people, $112,500 of AGI for people who claimed the head-of-household filing status on their tax return, or $150,000 of AGI for married couples who filed a joint tax return.

An example of a bright line cut off would be only allowing payments to singles with an AGI of $75,000 or less, head-of-household filers with an AGI of $112,500 or less, and joint filers with an AGI of $150,00 or less. If your income was at or below the applicable threshold amount, you would get a full $1,400 stimulus check ($2,800 for couples), plus an extra $1,400 for each dependent. But anyone with an AGI over those threshold amounts (even by $1) would be completely shut out – no stimulus checks at all for them.

There could be some wiggle room if your AGI for third-round stimulus check purposes is based on either your 2019 or 2020 tax return. That would be similar to how it worked for first-round stimulus checks, when your AGI was taken from either your 2018 or 2019 tax return – whichever one was most recently filed when the IRS started processing your payment. If that's the case with the next round of stimulus payments, you could either hurry up and file your 2020 tax return before the IRS processes your payment or wait to file it until after you get your payment – whichever approach works best for you. (The IRS will start accepting 2020 tax returns on February 12 and the due date is April 15.)

Lowering the threshold amounts – while keep the same phase-out rate – would also cut down on the number of people who receive a stimulus check, but partial payments would still be allowed. For example, instead of $75,000, $112,500 and $150,000 thresholds, make them, say, $50,000 (singles), $75,000 (head-of-household filers) and $100,000 (joint filers). If your AGI is at or below the appropriate threshold amount, you would get a full payment. If your AGI is above the threshold, your payment is subject to the phase-out rules (and possibly reduced to zero).

Adjusting the phase-out rate could reduce stimulus payments to zero faster (i.e., at a lower AGI amount). For first- and second-round payments, stimulus checks were reduced by $1 for every $20 of AGI above the applicable threshold amount. Using the same threshold amounts and phase-out rate for $1,400 stimulus checks, a single person with no dependents would receive at least a partial payment if his or her AGI is $103,000 or less. But if the phase-out rate is adjusted to, say, $1 for every $10 of AGI above the applicable threshold amount, a single person with no dependents would not get any stimulus money if his or her AGI is $89,000 or more.

Will You Get a Targeted Stimulus Check?

Now let's get to the question on everyone's mind: "Will I get a stimulus check if they're targeted." That, of course, depends on exactly how the payment calculations are structured – which we don't know yet. However, we can speculate on how third stimulus checks might be made to be more targeted and then provide some sample figures. That way, you can at least get a sense of where you'll stand under certain scenarios.

To set a baseline, the first set of tables below show how large payments would be – based on your filing status, AGI, and number of dependents – under Biden's current plan (i.e., $1,400 base amount, $1,400 per dependent, and the same threshold amounts and phase-out rate used for the first two payments).

SINGLE PEOPLE ($75,000 THRESHOLD)

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HEAD-OF-HOUSEHOLD FILERS ($112,500 THRESHOLD)

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MARRIED COUPLES FILING A JOINT RETURN ($150,000 THRESHOLD)

Let's now compare the amounts above with similar tables for each of the different ways described above for targeting stimulus checks. First, if a bright line cut off approach is adopted, it's easy to see if you'll get a check or not. If your AGI is at or below the applicable threshold, then you'll get a full payment. If your AGI is above the applicable threshold, you're out of luck and will get nothing.

The tables below show whether you would get a third stimulus check – based on your filing status, AGI, and number of dependents – if a bright line cut off approach is adopted, and the same threshold amounts used for first- and second-round payments are applied to $1,400 base amount payments ($2,800 for joint filers) and an additional $1,400 for each dependent.

SINGLE PEOPLE ($75,000 THRESHOLD)

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HEAD-OF-HOUSEHOLD FILERS ($112,500 THRESHOLD)

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MARRIED COUPLES FILING A JOINT RETURN ($150,000 THRESHOLD)

If the threshold amounts are lowered to $50,000 (singles), $75,000 (head-of-household filers) and $100,000 (joint filers), the following tables show how large your third stimulus check would be – based on your filing status, AGI, and number of dependents – if the payment starts with a $1,400 base amount ($2,800 for joint filers) and an additional $1,400 for each dependent is tacked on (assuming the same phase-out rate used for first- and second-round payments is applied).

SINGLE PEOPLE ($50,000 THRESHOLD)

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HEAD-OF-HOUSEHOLD FILERS ($75,000 THRESHOLD)

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MARRIED COUPLES FILING A JOINT RETURN ($100,000 THRESHOLD)

And, finally, if the phase-out rate is adjusted to $1 for every $10 over the applicable threshold amount, the last three tables reveal what your third stimulus check amount would be – based on your filing status, AGI, and number of dependents – if the base payment amount is $1,400 ($2,800 for joint filers), the extra amount for dependents is $1,400, and the threshold amounts are the same as they were for the first two stimulus payments (i.e., $75,000 for singles, $112,500 for head-of-household filers, and $150,000 for joint filers).

SINGLE PEOPLE ($75,000 THRESHOLD)

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HEAD-OF-HOUSEHOLD FILERS ($112,500 THRESHOLD)

--

MARRIED COUPLES FILING A JOINT RETURN ($150,000 THRESHOLD)