In late March, the government passed a $2.2 trillion stimulus bill to help millions of Americans recover from the economic impact that the coronavirus outbreak has caused.
The stimulus package includes payments of $1,200 per adult with an adjusted gross income (AGI) below $75,000 (or $2,400 per couple with a joint income below $150,000), plus $500 per qualifying child under age 17. The payment decreases by $5 for every $100 you earn above this limit, phasing out completely at $99,000 for individuals and $198,000 for couples.
There are plenty of misconceptions surrounding the stimulus checks—millions of which have already been direct deposited into Americans’ bank accounts—so let’s debunk those right now.
Myth: The stimulus payment is a loan that must be paid back.
The money you receive is yours to spend, invest, save, or donate as you wish. It is not a loan you are expected to pay back. Instead, it is a 2020 tax credit that is being doled out early because millions of people need it now.
Myth: The stimulus check is applied to your tax bill if you owe taxes.
You may use your stimulus payment to offset your taxes if you wish, but the IRS won’t automatically shave off the top to pay down your tax bill. Just remember, a debt collector could attempt to seize your stimulus check. While there are exceptions, filing for bankruptcy can put an immediate end to wage garnishment.
Myth: The stimulus money reduces your tax refund.
The refund you would normally receive has not changed. Any money you overpaid in taxes throughout the year will be returned to you, and you will receive a stimulus check separate and apart from your tax obligations.
Myth: The stimulus package is considered taxable income.
Unlike collecting legal settlements or winning the lottery, your stimulus check will not increase the amount you owe when you file your 2020 tax return next year. Likewise, the extra money can’t bump you into a higher tax bracket or affect your income eligibility for government assistance or benefits.
Also, judges will not consider the stimulus money as income if you apply for bankruptcy. And if you’re already following a Chapter 13 repayment plan, the check doesn’t count as disposable income.
Myth: If you earned too much in 2018 or 2019, you won’t get any stimulus money.
The coronavirus is affecting people’s incomes now. Your income may have been too high in 2018 or 2019 to qualify, but remember, the stimulus check is technically a 2020 tax credit. Therefore, if you earn below $75,000/$150,000 this year, you may be eligible for a payment next year. Note that everyone who receives a stimulus payment this year won’t receive another check.
Hopefully, the stimulus money helps you get through the coronavirus outbreak. If not, bankruptcy may be a debt relief option worth considering. To learn more, please contact Cutler & Associates at (773) 360-5802 for a free bankruptcy evaluation. We have proudly served the Chicagoland area since 1990.