This is how your third stimulus check could be ‘targeted’

What does a “targeted” third stimulus check look like? Proposals have covered all the bases, but the latest one (PDF) could signal a firmer direction for the future $1,400 per person maximum stimulus payment. The conversation has bounced back and forth for weeks, but now takes on an extra dimension against the backdrop of former President Donald Trump’s impeachment trial (where to watch it live). With the Senate now a court of impeachment, House Democrats have so far taken the lead to define what might happen next.

It’s complicated, but we’ll lay out how the next check could redraw income limits so fewer high income earners receive a new check (here’s how some might get a smaller check than before). In other cases, the $1,400 amount could send the budget for stimulus checks soaring, especially if each dependent in a household also gets $1,400. But an aspect of the “targeting” rules would change some qualifications in the forthcoming $1.9 trillion stimulus bill to keep dependents from opening a loophole for getting more money.

Behind it all is a fairly complex formula based on factors like your yearly income, the equation’s “reduction rate” and arbitrary income limits. We’re going to go over what the new rules could be, based on the latest proposal, and every way a payment could become more targeted. For more information, here’s when a third stimulus check could arrive and four ways filing your 2020 taxes early could help. This story has been updated with new information. 

How your next stimulus check could become ‘targeted’

The conversation around a “targeted” stimulus check seeks to send the payment to lower or middle income households, excluding upper income people from receiving any check at all, even a partial payment. 

Specifically, the next check could accomplish this by:

• Enforcing an absolute cutoff to the upper limit for receiving a payment.
• Changing the stimulus check formula so that dependents do not give households that exceed the income limit a partial payment, as they did before.
• Altering the “reduction rate” in the stimulus check formula to reduce the number of people who’d get a partial payment.

Additional ways to hypothetically make a “targeted”check could be:

• Establish a lower check maximum than $1,400. (Note that Biden has said he’s set on the $1,400 amount.)
• Lower the qualifying income limit for the full stimulus check amount (from $75,000 per individual and $150,000 per married couple).

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Why does a $1,400 stimulus check need to be ‘targeted’?

If the $1,400-per-person stimulus check followed the exact same formula as the first two payments, people considered high income would get all or part of the maximum payment, in addition to all the people Congress actively wants to supply with stimulus money. 

That all comes down to the way the mathematical equation works out. It’s complicated. In essence, you plug in the stimulus maximum ($1,200 for the first payment; $600 for the second), your adjusted gross income (AGI) and the number of dependents you have. Interestingly, adding in dependents could make it possible for people who exceeded the income limit of the first two checks to still get a partial payment. Read more about stimulus math here.

Without changing any other variables, a much higher $1,400 maximum would make it so that even single people who earn $100,000 would get a partial check. The size of that payment would otherwise balloon with dependents involved. For example, using our $1,400 stimulus calculator, single taxpayers with an AGI below $75,000 would receive the full $1,400 check. At $85,000, they could receive $1,150; at $90,000 a year, they could get $650; and if they make $102,900, the Treasury would send a stimulus check for $5.

If lawmakers want to keep the $1,400 per-person maximum but ensure that people who make, for instance, $100,000 a year don’t get the payment, the formula would have to change. It would have to become more “targeted.” 

Proposed: A new check could exclude earners over a set yearly income

One way to target a check is to exclude people who make over a certain sum. The new proposal would set a firm upper limit cutoff, making it impossible for single taxpayers who make more than $100,000 per year to get any money at all. The same would go for heads of household and their dependents, and married couples with or without children. 

If the proposal were to be adopted, a married couple with 10 dependents could earn $200,000 a year and never see a dime, to choose a completely extreme scenario. Changes to the formula would start here and work backward until the other parts of the equation fall into place.

In this situation, here’s what people could get:

Dependents of any age would count for an additional $1,400 per head, so long as the household doesn’t make above the absolute cutoff. So let’s say you’re a head of household with one dependent and you make $149,000 per year. If the new proposal is adopted, you’d receive around $1,400 more than someone who makes $150,000 year and also has one dependent. It’s a fringe case for sure, but an illustration of the proposed cutoff in action.

Proposed: Lowering the ‘phase out’ or ‘reduction’ rate

Changing the stimulus check formula used for the first two checks is an additional way to mathematically limit the number of people who receive a check. For the current proposal to work, the rate at which the check would “phase out” or “reduce” between different stages of a person’s salary would have to change.

For example, with the new proposal, a single taxpayer would get the full $1,400 if their AGI is under $75,000. That means they’d be qualified to receive some amount of stimulus money if they make between $75,000 to $99,900 per year — with their total getting smaller the higher their yearly income.

Adjusting the part of the formula that controls partial payments — the “reduction” or “phase out” rate — would result in people who make more than $75,000 per year hitting the vanishing point to get a partial payment, resulting in fewer checks going out overall.

For example, let’s say that the next check were to reduce your share by 10% instead of 5% for every $100 in income you earned (this was a previous proposal). That would mean you’d get less money incrementally for every amount you make over the limit to receive the full payment. In this case, you’d get $10 less per $100 versus $5 less per $100. If you make thousands of dollars more than the upper limit, that difference could add up fast. 

Another way to ‘target’ a check: Giving fewer people the full amount

An earlier proposal embraced by some Democrats, according to The Washington Post, would begin phasing out recipients who make $50,000 a year or more. 

Say you have a $1,400 check and people who make less than $50,000 are the only ones who’d receive the full amount. People with an AGI of more than that (up to a certain limit) would get a partial payment — which would also peter out more quickly for people with relatively higher incomes. That calculation could potentially mean a little bit of money for middle income earners, but it would still exclude the highest earners from receiving a stimulus check for any quantity.

Far fewer people would receive stimulus money with a formula that phases out starting at $50,000 than one that phases out starting at $75,000.

Dropping the per-person maximum would also cut payments overall

Let’s say for the sake of argument that a $1,000 stimulus check were adopted instead of $1,400. (This isn’t likely to happen after Biden confirmed he’s dead set on a $1,400 maximum.) Even if no other changes were made to the formula or to the income limit, lowering the amount would automatically disqualify more people simply because of the way the math works out.

For example, the drop from the first $1,200 stimulus payment to the $600 second stimulus check immediately disqualified people who had otherwise qualified for the first stimulus check. Simply using a $600 base instead of $1,200 reduced the cutoff point for receiving a partial payment. 

Said another way, the smaller the per-person maximum, the sooner people who made more than $75,000 a year hit the limit for receiving any money.

With the first check, single taxpayers — no spouse or kids — could get some amount of stimulus money if they made less than $99,000. With the second check, that vanishing point dropped to $87,000. The only difference in that part of the equation was the maximum per-person payment. (Separately, child dependents counted for $600 in the second check instead of $500.)

As another illustration of the effects of the base payment, the first stimulus check went out to around 160 million people, and the second payment reached an estimated 147 million households, despite more groups of people qualifying for the second check. Likewise, a hypothetical $1,000 payment would reach fewer people than a $1,400 stimulus check even if that were the sole change to Biden’s proposal.

How new qualifying groups could factor in

In addition to supporting larger stimulus checks, Biden also wants to include two previously excluded groups: dependents of any age (not just children under 17) and all families with mixed-status citizenship. Combined, that could potentially extend stimulus funds to nearly 20 million people who previously might not have been counted toward the family total. The $600 billion GOP proposal would allot $500 to dependents of any age.

If passed, the outcome would most likely be a larger stimulus check for families that previously qualified (in the case of 17-year-olds and older adult dependents), and some mixed-status families qualifying for a new check for the first time. In all cases, families would have to meet all other eligibility requirements — like an income limit — to receive a future stimulus check.

Until negotiations begin in earnest, we’ll have to see how the stimulus bill and third stimulus check develop. For more information, here’s the current timeline for a third stimulus check and here’s what to know about stimulus check qualifications. Here’s what to do if you’re missing all or part of your stimulus check.