Stimulus checks could become more ‘targeted,’ with stricter rules. What could change — again

With just a handful of days left for Congress to pass the $1.9 trillion stimulus bill by a mid-month deadline, we thought we knew how lawmakers would target the third stimulus check, based on the House-approved plan. However, Senate Democrats decided to revisit who would qualify for the next round of payments and how much they could receive this week by tightening the income limits used to determine a payments.

The proposed Senate change could mean smaller checks for some individuals and families and nothing at all for nearly 17 million adults and children who would have qualified under the House plan, according to the Institute on Taxation and Economic Policy, a left-leaning think-tank.

Based on what Senate Democrats are considering, we’ll explain how factors like your yearly income fit in, the equation’s “reduction” or “phase out” rate and other calculations that could affect your next check. For more information, here’s when a third stimulus check could arrive, four ways filing your 2020 taxes early could help and what happens if a third check comes out during tax season. This story was recently updated. 

What is happening now with the Senate and ‘targeted’ stimulus checks?

Senate Democrats are proposing lowering the income caps the House approved last week for individuals and families to qualify for a payment. By setting a hard income cap for the third check, those over the income limit would be excluded from a payment. If the lower-cap limits are agreed to, the bill would exclude individuals and families the lawmakers define as higher-income earners.

According to the Institute on Taxation and Economic Policy, the bottom 60% of Americans would receive a full payment under both the House and the Senate plans. The Senate change, however, would be felt at the top end, where more than 11 million adults and over 4 million children would be shut out of a check. Here are the income limits from the Senate and the House plans, compared.

If the new income cap is approved for the third check, the limit would be lower than that for the $600 check — at $87,000 for an individual, $124,500 for a head of household and $174,000 for families — but the amount people who qualify could receive might be more than twice the amount of that second check.

How a targeted stimulus check would work

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 would 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” (also known as a “phase-out rate” to reduce the number of people receiving a partial payment.

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What happens if a $1,400 stimulus check isn’t ‘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 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: People who make more than this won’t get a check

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, heads of household and their dependents, and married couples with or without children over a hard cap to receive any money.

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 extreme scenario. Changes to the formula would start here and work backward until the other parts of the equation fall into place.

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. Above the limit, no one in the family receives a payment.

Another way to limit a check: Set a lower cap for 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.

Drop the per-person maximum to cut the check 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 qualifications 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 Senate may also look restrictions around stimulus checks for undocumented immigrants.

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.