U.S. lawmakers are set to begin debate on a second stimulus check as early as July 20, but Senate Majority Leader Mitch McConnell has hinted that the next check won't be as widely available as the first one. In fact, Sen. McConnell (R-Kentucky) recently said people with incomes under $40,000 have been hit the hardest by COVID-19, so there's a good chance the lawmaker will suggest a stimulus check only for Americans with an income below this limit.
If McConnell gets his way and the second COVID-19 stimulus payment is available only to those who earn $40,000 or less, far fewer people will get the help they may need from Uncle Sam in the next coronavirus relief bill.
The numbers behind the next possible stimulus check
When the Coronavirus Aid, Relief, and Economic Security (CARES) Act authorized the first round of stimulus checks, payments of up to $1,200 per adult and $500 per eligible dependent were available for single tax filers with incomes up to $75,000. For married joint filers, the full payment was available with an income up to $150,000. Those who had incomes above these thresholds saw their check amount reduced by $5 for each $100 over the limit.
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Under the CARES Act, the IRS sent out an estimated 159 million coronavirus stimulus checks, and the House Ways and Means Committee estimates there are another 35 million payments owed. All told, that would mean around 194 million Americans were eligible for the first COVID-19 money.
If the second payment is limited to individuals making under $40,000, the number of people who get the next coronavirus stimulus check will be much smaller. According to Census Data, there are only around 131 million people with incomes under $40,000 in the U.S. If there's a strict income cap for the next round of payments, that would mean as many as 63 million fewer Americans get any assistance.
But the CARES Act didn't just cut people off with incomes above $75,000. It phased out eligibility. If the same thing happens next time, more Americans could at least get partial relief even if they aren't entitled to a full payment. But the number of people helped would still be much smaller.
In fact, the Census data shows more than 57 million Americans earn an income between the $40,000 cap McConnell suggests and the $75,000 cap for single filers under the CARES Act. All of these people would get less money because they'd be subject to a reduction in their checks that didn't happen with the CARES Act coronavirus payments.
There's another big problem with a lower income cap
Because COVID-19 has caused a recession and record unemployment, millions of people have seen their incomes fall dramatically this year. Unfortunately, there's no easy way to account for that when stimulus money is sent out.
When the CARES Act money was distributed, the IRS relied on income tax data from 2018 and 2019 to determine whom to send payments to and how much to send. They did this because some people hadn't yet filed their returns for 2019. Since the tax deadline for last year has passed, most everyone will probably have their most recent (2019) tax forms in for last year, so the IRS will probably rely on those in determining who qualifies -- but that still means the income is a year out of date. And a lot has changed in a year.
Because the IRS is forced to rely on old data, anyone who made $40,000 or more last year wouldn't be eligible for a second stimulus check payment now -- even if their income has fallen dramatically in 2020 because they're now unemployed or have had their hours cut due to COVID-19.
This was a problem under the CARES Act, too. But it would be an even bigger issue with the lower income cap that's being proposed. That's because people with incomes between $40,000 and $75,000 who'd be affected this time are less likely to have an emergency fund than those who made $75,000 or more.
What can you do if you're left out of the second stimulus check?
Since these stimulus payments are simply an advance on a tax credit, you could claim yours when you file your 2020 taxes in 2021 if your income was higher last year but has fallen below the $40,000 threshold this year. Unfortunately, you'd have to wait until you file taxes for this year to show the IRS your income dropped so you won't see the money for a long time. The IRS won't start accepting 2020 returns until the end of January 2021, so you won't get relief when you need it, but at least you should get it in the end.
If you aren't eligible at all, that doesn't mean you have no other options. Some states are providing relief to people who need it, and unemployment benefits are available to those without jobs (although they may provide you with only a fraction of your pre-COVID income if expanded unemployment benefits aren't extended). And you do have the option to borrow from a retirement plan or take penalty-free withdrawals from one if you're struggling. Interest rates are also near record lows, so tapping into your home equity could also be an option.
While borrowing or raiding your retirement account is a last resort, with record-high unemployment and some people afraid to go back to work due to the coronavirus, you may have few other choices.
But if COVID-19 cases continue rising, the government may also be forced to provide more relief to a broader segment of the population. So let your lawmakers know if you don't think that help should be restricted to those with incomes of $40,000 or less.
