Best ways to use your stimulus check

In the wake of the coronavirus outbreak and the resulting market fallout, the U.S. government has taken historic action to shore up the economy.

Last month it enacted a $2 trillion stimulus package that will send direct payments to the majority of American households.

Whether you’re facing job loss as a result of the pandemic or simply find yourself with a bit of spare money, you may be wondering how best to use your stimulus payment.

Here we take a quick look at who is eligible for a stimulus check, along with some of the ways you should consider using any payment you receive – including saving for a rainy day, paying off credit cards and supporting your local economy.

How to get a stimulus check

Assuming you qualify for a government stimulus check, the amount you receive will depend on your adjusted gross income from your 2019 federal tax filing. If you haven’t filed yet, your 2018 filing will be used instead.

Here’s how stimulus payments breakdown by income and dependent status:

• Single people whose tax returns show an adjusted gross income of up to $75,000 will receive a $1,200 check or deposit.
• If you make up to $99,000 per year, your stimulus payment amount will be reduced by $5 for every $100 in income above $75,000.
• Married couples filing jointly with a combined adjusted gross income of up to $150,000 will receive a $2,400 check or deposit (reduced checks will be sent to married couples earning up to a combined $198,000 per year).
• Parents will receive $500 for each dependent child under 17 years old.
• Individuals over age 16 still claimed as dependents are not eligible for a stimulus payment. Note that this could impact some young adults like college students, as well as adults with disabilities and elder adults claimed as dependents.

Checks or direct deposits will be sent automatically to the address or bank account on file with the IRS. You don’t need to file anything else or pay back the stimulus money.

See related: How to get your stimulus check faster

Getting stimulus money via a prepaid card or app

The Consumer Financial Protection Bureau noted that many people may prefer to get their stimulus payment via a prepaid card, as this could be “faster, more secure, more convenient, and less expensive – for both the government agency and the consumer – than making disbursements through other methods such as paper check.”

As such, it’s no surprise that the IRS recently started sending some stimulus payments via prepaid debit cards. These cards, sometimes called Economic Impact Payment (EIP) cards, are sent to people who are eligible for a stimulus payment, had their tax return processed by the Andover, Mass. or Austin, Texas IRS Service Center and did not have their bank account information on file with the IRS. These cards resemble credit or debit cards and come in a plain envelope from “Money Network Cardholder Services.”

Additionally, some tax preparation companies and software packages like Turbo Tax allow users to receive tax refunds via prepaid cards. If you’ve used this method for recent filings, this may be how you get your stimulus payment, but not all companies have provided a definitive answer.

Turbo Tax has set up an informational portal for customers who will get their stimulus payment via their Turbo Visa Debit Card, which can be used anywhere Visa is accepted.

Meanwhile, Jackson Hewitt, which uses prepaid debit cards like the American Express Serve card to disburse tax refunds to some clients, has said: “If you did not receive a Refund Advance or select Assisted Refund, your stimulus should go on your prepaid card. If you received a Refund Advance or used Assisted Refund and selected a prepaid card, it has yet to be determined how the IRS will distribute your funds.”

Update information and track stimulus payment via IRS Get My Payment app

Eligible U.S. citizens and permanent residents who had gross income of $12,200 or less (or $24,400 or less for married couples) for 2019 or who were not otherwise required to file federal income taxes can enter their bank account information at an IRS web portal to receive payment.

Tax-filers, on the other hand, can use the IRS Get My Payment application to update their bank account information in order to receive payments via direct deposit instead of waiting for a check in the mail. In order to verify your identity, you may need to input your adjusted gross income as it appears on your 2019 or 2018 tax return as well as the amount of money you owed or received as a refund.

You can also track the status of your payment or notify the IRS if your mailing address has changed since you filed taxes.

When will stimulus checks be deposited?

How quickly your check or deposit arrives will depend on your income level and whether you already have banking information on file with the IRS. If the IRS already has your direct deposit information, you should see the funds deposited electronically any day now. If not, you may need to wait several weeks or even a few months to receive your check via snail mail.

As reported by The Washington Post, an IRS plan circulated internally breaks down government stimulus check distribution as follows:

• April 9, 2020: The IRS begins issuing electronic stimulus payments, to be deposited by April 14 at the latest.
• Week of April 24, 2020: The IRS starts sending out paper checks, prioritizing payments for individual taxpayers with incomes of $10,000 or less.
• Each subsequent week: Another 5 million checks will be distributed, based on income level. For example, checks for those earning $20,000 or less will be sent by May 1, followed by those earning $30,000 or less on May 8.

Can my stimulus check be garnished?

It’s possible. In audio obtained by The American Prospect, Ronda Kent, chief disbursing officer with the Treasury’s Bureau of the Fiscal Service, can be heard explaining to banking officials that there is “nothing in the law that precludes” banks from using stimulus money deposited into their accounts to offset delinquent loans or past-due fees.

This is because stimulus payments are technically tax credits, not federal benefits. As a result, they’re subject to garnishment and could be seized by debt collectors. Additionally, banks would typically deduct any negative account balance from incoming payments.

See related: Can my stimulus check be garnished?

That said, many banks are forgoing this practice, with Chase Bank returning stimulus money to the Treasury Department in full so that the government can mail the recipient a check instead. Bloomberg also reported that Wells Fargo is setting aside negative balances for 30 days and Citigroup will give customers a temporary provisional credit against a negative balance. Bank of America is also pausing collections on negative account balances.

What to do with your stimulus check

The best way to use your stimulus check will vary considerably depending on your personal financial situation. Along with using the money to pay for basic expenses, you may consider adding to emergency savings, paying off debt or simply spending to help shore up the economy.

Strategically cover essential expenses

It should go without saying that if you’ve lost your job or are otherwise facing financial hardship as a result of COVID-19, your primary focus should be taking care of essential living expenses like housing and food.

“These are the basics you need to keep going so you can live to fight another day,” says Kelan Kline, co-owner of the personal finance blog The Savvy Couple with Brittany Kline. Kline points to what he calls the “four walls” of food, utilities, shelter and transportation as top priorities. “Everything else gets put on the back burner.”

That said, you can still be strategic about how you use your stimulus money to pay for some of these expenses. Mitch Kime, head of consumer payments at KeyBank, recommends that people take advantage of their government stimulus check as a “liquidity tool” by using their credit cards to cover purchases they know they can pay off.

“You essentially buy yourself a 30-day grace period on everything you’re purchasing,” says Kime, after which you can use your government refund to pay your balance in full with no interest charges.

Using a credit card to pay for everyday expenses instead of cash may also allow you to save a bit on every purchase. “I’m a big fan of cash back in particular,” says Kime. “Why not parlay the money you’re getting from the government and turn it into even more by way of cash back?”

Kime cites flat-rate cash back cards like KeyBank’s own Key Cashback Credit Card as offering much-needed value given the climate: “Not a lot of markets out there are offering a 2% yield right now.”

Keep in mind, too, that your definition of “essential” may include more than just staples like food and rent. “For people prone to anxiety and depression, the last few weeks have been a nightmare,” says Jen Smith, personal finance expert and creator of Modern Frugality. “So if counseling or doctor’s visits aren’t a regular expense, your money would be well spent investing in your mental health.”

Boost emergency savings

Assuming your basic needs are met, using stimulus money to shore up your emergency fund is a smart move. After all, over half of U.S. adults have either no emergency savings or less than needed to cover three months’ worth of living expenses.

Even if your finances seem secure now, things can change quickly. That’s why financial experts generally recommend you have at least three to six months’ worth of expenses saved, either in a savings account tied to your regular bank or in a high-yield savings account that you can easily access if needed.

“Americans have always been underprepared for emergency expenses or losses of income, which is amplified by a situation such as COVID-19,” says Brian Walsh, certified financial planner at SoFi, a personal finance company. “If you do not have at least one month’s worth of expenses saved in a cash management account, then this is an easy decision and the check should go toward increasing your liquidity.”

While it won’t do much to stimulate the economy, setting aside some of the stimulus money you receive in a savings account should give you some peace of mind as you weather this storm.

“This is a unique topic in which my thoughts as a financial planner conflict with my thoughts as a citizen of a country impacted by a pandemic,” says Walsh. “Ultimately, if everyone followed sound financial planning advice related to their stimulus check, the effort would likely not have the desired impact of stimulating the overall economy.”

Ted Rossman, industry expert at CreditCards.com, echoes this view, advocating a wait-and-see approach during these volatile times.

“I view a near-term cash cushion as more important than ever because of the tremendous uncertainty surrounding the economy and the job market,” says Rossman.

Pay off credit cards and other high-interest debt

A recent CreditCards.com poll on long-term debt found that nearly 60% of Americans with credit cards entered the coronavirus pandemic carrying credit card debt, and over half of those surveyed had been in debt for more than a year. While the Fed has slashed interest rates to near-zero to support the economy during this crisis, the average credit card APR is still over 16%, making it costly to carry a balance.

Given how difficult it can be to pay off credit cards, putting a large chunk of money toward your principal balance makes sense, especially if your short-term financial situation is otherwise stable.

“The more savings you have, the better the debt payoff option looks,” says Rossman.

That said, if your finances are less secure, you may want to hold off until things settle down.

“Normally, I’d be a huge fan of using ‘found money’ (like a tax refund) for paying down high-interest credit card debt,” says Rossman. “And that’s still a good goal. It’s just that if you suddenly found yourself out of work and you don’t have much savings, I’d put even more of a priority on short-term cash flow – keeping money on hand for near-term essentials.”

This is especially true since many card issuers, including the likes of American Express, Chase, Bank of America, Citi and Wells Fargo, are offering relief to those impacted by COVID-19, with some offering payment waivers and other hardship programs.

“I think you will find unprecedented levels of willingness to work with clients right now,” says Kime.

Even if you decide not to use the bulk of your stimulus money to tackle debt, you should still be sure to make at least the minimum payment due on your credit card each month to protect your credit. Congress rejected a legislative effort to prevent negative credit reporting during the pandemic, so if you skip or miss payments, your credit score could take a hit.

If you have a larger balance and need to pay it off gradually over time, you may want to hold onto your stimulus money and transfer your balance to a new card that charges a lower interest rate. Just keep in mind that you’ll need good to excellent credit and a stable income to qualify for the best balance transfer credot cards and 0% introductory APR credit cards.

Support small businesses, give back and bolster the economy

If you’re lucky enough to have a stable income, minimal debt and a good chunk of money saved, one of the best things you can do with your stimulus check is use it to support your community and the economy.

Whether you order from a local restaurant, buy a gift card, leave a delivery person a bigger tip or donate to charities and individuals in need, your “extra money” can make a big difference. Indeed, SimplyWise recently conducted a survey on coronavirus stimulus efforts that found 63% of Americans will need another stimulus check from the government within the next three months. If you don’t need the money, you should seriously consider paying it forward.

“There’s no way for the government to figure out who needs the money [most],” says Smith. “So, it’s up to us to make sure the people who need more, get more.”

Similarly, Kime advises those with a “low level of income impact” to use the money for its intended purpose of stimulating the economy.

“I would encourage them to spend the money. Support their local retail establishments to the extent that they can,” says Kime. “Spend the money, stimulate the economy and go about your business as usual, to the degree that you’re comfortable doing that.”

Final thoughts

While the best way to use your stimulus check will ultimately depend on your financial situation and personal priorities, financial experts share a general consensus: You should take care of basic needs first, then consider adding to your savings or tackling any high-interest debt.

“Ultimately, we are encouraging individuals to do what is best for their personal finances and only spend this money under limited circumstances,” says Walsh.

But if you’re already in a good place financially and well-prepared should your situation change, consider using this unexpected money to support your community and the economy. After all, as Kime points out, this is the true goal of the stimulus package.

“We want to provide cash to people who need it,” says Kime, “and we also want to stimulate the economy, which in theory will save jobs and keep some sense of normalcy.”