Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions — in 15 minutes or less.
This week’s question is from multiple listeners who want to know about coronavirus relief checks. Those who haven’t received their money want to know how much to expect and when it will arrive. Plus, many are wondering how best to use this cash. And we’re here to help.
Most American adults are eligible for government relief checks of $1,200, and parents can get an additional $500 per child under 17. The relief you get starts to phase out when your adjusted gross income exceeds $75,000 and expires entirely once your AGI exceeds $99,000. (Those numbers double for married couples, so relief begins to phase out at $150,000 and is gone after $198,000.) You can estimate your payment using our calculator.
If you filed your 2018 or 2019 tax return and used direct deposit, you may have already received your check. If not, it should arrive in your bank account soon. If you get Social Security payments by direct deposit, you should get your relief payment the same way.
If you didn’t use direct deposit with your tax return or Social Security payment, you should get a paper check through the mail. You can check the status of your relief using the IRS’ “Get My Payment” tool. There are also instructions on that site about what to do if you didn’t have enough income to file a tax return in 2018 or 2019. You may have to check back a few times as the IRS updates its information.
The relief payment is not an advance of your regular tax refund, by the way, and you won’t have to pay the money back.
What you should do with the money depends on your situation. Normally we suggest using windfalls to pay down credit card debt and beef up your emergency fund, but these are not normal times. If you’ve recently lost your job, prioritize necessities such as shelter, food and utilities. Talk to your credit card companies and other lenders about forbearance, which would allow you to skip a few payments. The National Foundation for Credit Counseling can get you in touch with agencies that can fill you in on what help is available.
Many people may need to file for bankruptcy. If you’re struggling with debt, consider making an appointment now with a bankruptcy attorney, since they’re about to get busy. Most offer a free initial consultation. You may need to use your relief check to help pay the costs of filing.
If you still have a job, beefing up your emergency fund is probably the best call. If your savings are in good shape, consider helping your community. Donations to Feeding America could be particularly helpful right now.
Get informed. Calculate how much to expect, understand whether the payment will come by direct deposit or paper check and check with the IRS' "Get My Payment" tool if you haven't gotten your money yet.
Spend it wisely. This crisis may go on for awhile. If you’ve lost your job or are otherwise struggling, prioritize needs such as food and shelter. Try to work out a deal with your creditors to stay in good standing, but make sure that doesn't suck up all of your money.
Beef up that emergency fund if you can. If you’re already flush, help your community.
More about coronavirus relief checks on NerdWallet:
Liz Weston: Welcome to the NerdWallet SmartMoney podcast, where we answer your money questions in 15 minutes or less. I'm your host, Liz Weston.
Sean Pyles: And I'm your other host, Sean Pyles. As always, be sure to send us your money questions. You can call or text the Nerd hotline at (901) 730-6373. That's (901) 730-NERD. Or you can email us at [email protected]
Liz: Let's get right to this episode's question, or actually questions, because in the past few weeks we received a number of different questions about the government relief checks that were part of the CARES Act that was signed into law in March.
Sean: Yeah, people have been wondering when they're going to get their checks, how much they'll get, and perhaps most importantly, what they should do with this money.
Liz: And in this episode of the NerdWallet SmartMoney Podcast, we'll help you answer each one of those questions.
Sean: All right, let's dive right into it.
Liz: OK. First, let's talk about how much people might be getting. Sean, can you give us the details on how that works?
Sean: Yes, I can. And this is a little technical, just a heads-up. The Treasury Department is dispersing up to $1,200 per person and $500 per child under the age of 17. The amount that you get is based on your 2019 adjusted gross income. If you haven’t filed your 2019 return yet, they’ll use the information from your 2018 return. How much you get depends on your income and tax category. For single filers, for example, if you made $75,000 or less that year, you'll get the full $1,200. Payments shrink by $5 for every $100 you make above that $75,000 amount, and anyone making above $99,000 won't get any payment at all.
Meanwhile, married couples who filed jointly and whose adjusted gross income doesn't exceed $150,000 are eligible for $2,400, which similarly tapers by $5 for every $100 above that $150,000 amount. So, as I said from the outset, this is a little complicated, but fortunately we have a calculator at NerdWallet that can help you figure out how much you might get, does all of this tricky number work for you, and you can find that on our show notes post at nerdwallet.com/podcast.
Liz: And Sean, I just wanted to address one of the myths that's out there because I'm hearing this a lot, that somehow these relief checks are an advance of your refund for next year. And that's not quite how it works, right?
Sean: No, that is not the case. You won't have to pay this back, which is great news. This is actually what's called a refundable tax credit, and this will reduce the amount of tax that you owe, giving you a dollar for dollar reduction of your tax liability.
Liz: Yeah, and that can confuse people. Another way to think about it is, they're going to put a credit on your taxes for 2020 and this is an advance of that credit, but it's not like your refund is going to be smaller next year because of it. This really is extra. And if after you go through all the machinations and actually file your return, it turns out that you got a relief check that was too big, you don't have to pay the excess back. So it's all good, don't worry about it. The money's yours.
Sean: All right. Now, let's turn to when people might expect this money.
Liz: A lot of people already received these checks because they had direct deposit. They filed their tax returns, they set up direct deposit way back when and so, bam, the check's already arrived. If you did not set up direct deposit or you don't file tax returns because you don't make enough income, you might have to wait a little while and in some cases you might have to take some action. So we're pointing people to the IRS' website where there's a tool called "Get My Payment," and that can help you figure out where your payment is in the process, if you're waiting for a paper check versus getting direct deposit. And if your check is held up for some reason, such as you haven't filed a tax return for the last couple of years, you may need to file sort of a mini return to get the relief check going.
Sean: Yeah, and the website has been a little bit buggy. I will warn people about that. And I think that's mostly been due to high traffic. So one thing that I like to do when things like this happen is go to the website first thing in the morning or toward the end of the night when there aren't going to be as many people checking it. That's just one way that you might be able to get in.
Liz: That's a great tip.
Sean: Yeah. And with the issue of people getting it, some people not getting it: I got mine a couple of weeks ago. A friend of mine didn't, and she's really tight right now and she's wondering how long it might take her. So she fell into the category where her direct deposit info was outdated. Basically, the government would have sent her that money, but based on what she had in the IRS system, it bounced back to them. And so from here it can take several weeks for people in her situation to get their checks because it basically has to be rerouted back to the IRS and then they will mail the check to her. So I've heard pretty wide-ranging estimates of five weeks to five months. I don't think it will be the five months, but it will be a decent amount of time because there are millions of people in this situation.
Liz: Yes. And there are also people who are receiving Social Security, for example, and initially they were told if you didn't file taxes, you're going to have to file this mini return to get the relief checks. Then they changed their mind and realized most Social Security people are set up on direct deposit. So it was a fairly easy fix to just turn around and say you're going to get your check. Again, if you haven't filed returns in the last few years because you didn't have enough income, now is the time to get to that website at the IRS and file the mini return that they're asking for so you can get your check.
Sean: All right, so there are some pretty technical details that we just ran through of how much you might get, when you might get it. Let's turn to the more interesting "choose your own adventure" aspect of this, which is how people quote unquote — I'm using air quotes here — "should" use this money. I've heard some people are using this to pay off credit card debt; some are just hoarding it away in their savings. I have another friend who bought a really nice pair of headphones. So what people are doing is all over the map here. A lot of people are also just buying groceries because they need to do it. This is subsistence money, so I have some thoughts on how people "should" use this, but I'd love to hear yours first, Liz.
Liz: It really depends on your situation. Normally, we say, "OK, you get a windfall and you use it to pay down any credit card debt and build up your emergency fund." We're not in normal times, obviously. What you should do actually depends on your situation. If you lost your job or you are in danger of losing your job, and that's a whole lot of people — I mean, the Federal Reserve in St. Louis is basically projecting a 30% unemployment rate and we don't know if it'll get that high, but obviously there's a lot of jobs at stake — so if you're in that category, you want maximum financial flexibility, you want maximum cash on hand.
So I would not send that check off to the credit card companies. They will be fine without your payment. I would try to make minimum payments to keep your access to credit available, but you also might want to look into forbearance. A lot of the credit card companies as well as mortgage lenders, personal lenders, auto lenders are working with people. So if you have lost your job, look into all the forbearance you can get. Again, you want to keep that money on hand.
If you might file for bankruptcy, and again, there's going to be, we expect, a huge uptick in filings because people who are on the edge just got shoved over and more people may be in that boat soon, there's going to be a lot of small-business bankruptcies. If that's the case, you do not want to pile up cash. Cash is something that can be taken in bankruptcy court, so you want to think about is where you can put that money that's out of the reach of creditors. One opportunity might be to stick it into a Roth IRA. You don't have to invest it, you just have to get it into that shell that's a Roth. And that way it's protected from creditors but you can get access to it at any time. Your bank can set this up. Try to set up a Roth IRA with low or no fees. Again, you don't want to invest it because you want that money in cash available to you. You just want it out of a creditor's hands, if you are going to file for bankruptcy.
Also, just a side note, a typical bankruptcy costs $1,500. A lot of people wait so long to file bankruptcy that they don't even have that cash. So this might go a long ways towards a bankruptcy filing.
One last note. If you might be on that path, if you've got a lot of debt, go talk to a bankruptcy attorney now. They're going to get super, super busy. Right now they're still offering free consultations, so go talk to one and just get an idea of the lay of the land and what you can do to kind of set yourself up.
Sean: Yeah. I also want to plug one of my favorite resources, which is nonprofit credit counseling agencies. They can provide really helpful budgeting advice and help you understand your overall financial picture and how this, honestly, somewhat small influx of cash might be able to help you and what you might be able to do with it. So if you're feeling confused and you don't know how to manage your budget since everything has been upturned lately, give them a call. They can offer free advice.
Liz: Well, also they're offering help with the forbearance issue. If you are not sure how to approach your creditors, they can actually help you with that and they can help you with budgeting. I'll just put in a note that their job is to try to steer you away from bankruptcy. So if you are going to go see a credit counselor, I would also talk to a bankruptcy attorney as well so you know all your options.
Sean: Yeah, getting all of these perspectives here.
Liz: Exactly. If you're fine for now, if your job looks like it's pretty solid, then we fall back to the normal advice, which is if you've got some toxic debt, to pay down credit cards, it might go there. Personally, I would build up my emergency fund. I just think that's the smarter thing to do right now, is to have cash on hand.
Sean: Yeah. We don't know how long this is going to last for and if you're sitting pretty right now and this money is on top of the income that you already have, that's great. But again, we don't know what's going to happen, so build up that emergency fund. It's more important than ever.
Liz: I also wanted to throw a pitch in, because I heard from a couple of readers who basically said, "We're fine. Our jobs are secure," or "We're retired" or whatever — "Where can I put this money that it will do the most good?" And I've come back to over and over again Feeding America. That is an organization that is networked with hundreds of food banks across the country and if you've seen those pictures of the 10,000 cars lined up in San Antonio for food relief, you know this is a huge issue. So my first impulse would be give that money to a food bank or go to Feeding America and make your donation there.
Sean: At a local level, I think it's also important to support local businesses if you do have that extra cash right now. That can mean takeout, or I have a friend who even bought a plant from her local plant store and had it delivered to her. So there are all sorts of creative solutions so that you can support local businesses that you care about and help keep the economy a little more afloat.
Liz: Should we also talk a little bit about the scams that are out there, because it seemed like as soon as these checks were announced the scammers came out of the woodwork? Oh, and debt collectors, too. The debt collectors know you're getting your money.
Sean: Yeah. Basically, anyone who wants to get your money from you is using this time to try to do so. Let's talk about debt collectors first since they can be pretty scary to deal with. First and foremost, if you're getting a call from a debt collector who's pressuring you to use this relief check to pay off a debt with them, make sure you stop and breathe before rushing into any payment. Debt collectors can prey on your anxiety, so don't let them do that. In terms of financial priorities, collection should be toward the bottom of your list right now. Do what you can to keep them at bay. The story is a little different if you have a garnishment order against you. This happens when a debt collector sues you for payment and a court rules that they can take money directly from your bank account. If you're in this situation and you know a debt collector is about to swoop in on this payment, don't let that money hit your bank account. Cash it out elsewhere. Again, you need to retain as much liquidity as possible in this uncertain time.
Liz: Yeah, you could do things like put it on a prepaid card or you could open another bank account if that's an option for you.
Sean: So that's a pretty easy way to guard your money from debt collectors who might be trying to come for it. However, there are all sorts of other malevolent actors who are just pushing scams out there to try and get your money. One scam that we've seen is for fake charities where fraudsters use images and stories of real people to try to exploit your generosity and basically get your money. So if any organization is asking for your money, double-check who they are before donating.
Liz: The other scam we've heard about is the bad guy sends you a check that's supposedly official and your stimulus or relief payment and then says, "Oh, you've been overpaid. You've got to pay me back." They're basically trying to get you to cough up money through these phony checks. So don't fall for that, either. If you're getting an actual check, it's going to look like the check you got for your tax refund and if you are getting a direct deposit, it will come through with a designation that says something like, "U.S. Treas 310 Tax Ref."
Sean: OK, well, I think that might be all we have time for. Let's get to our takeaway tips.
Liz: All right, takeaway tip number one. First, understand how much you might be getting and how it could be coming.
Sean: And next up, prioritize your spending based on your needs like food and shelter and for things like your credit card bills. Try to work out a deal with your creditors to stay in good standing, but make sure that doesn't suck up all of your money.
Liz: If you have that taken care of, now is an excellent time to start beefing up that emergency fund. And if you're flush with cash, help your community.
Sean: And that is all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373. That's (901) 730-NERD. You can also email us at [email protected] and visit nerdwallet.com/podcast for more info on this episode. And, of course, remember to subscribe, rate and review us wherever you're getting this podcast.
Liz: And here's our brief disclaimer, thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean: And with that said, until next time, turn to the Nerds.