Definition and Examples of Stimulus Checks
Stimulus checks are payments sent directly to citizens via paper check or direct deposit. They are often part of larger stimulus packages initiated by the federal government during an economic crisis such as the Great Recession of 2008 or the COVID-19 pandemic.
These broader stimulus efforts may include a variety of initiatives, including tax and fiscal policy changes, business tax credits, and more. What makes stimulus checks unique is that they're given directly and immediately to taxpayers, often with few strings attached.
Consumer spending often slows down during an economic crisis, and citizens may have trouble paying for basic needs like their mortgage, rent, or food. Stimulus checks are designed to increase consumer confidence and stimulate spending.
How Stimulus Checks Work
Specific criteria for stimulus checks vary depending on the legislation Congress passes for each specific payment. They can be sent to all taxpayers or only to a subset based on income limits. In some cases, Americans have had to meet other criteria, such as being a government employee, in order to receive a stimulus check.
Whatever the specific critiera, once the legislation is passed, the IRS begins sending checks or direct deposits to stimulus recipients. These payments come out of the U.S. Treasury reserves, and the government counts on increases in spending, hiring, and overall gross domestic product (GDP) to offset the cost in the future. They are typically not treated as taxable income.
Most recently, in March 2021, the American Rescue Plan Act (ARPA) included cash payments of $1,400 per person for most Americans.
A History of Recent Stimulus Checks
To better understand how these payments work, we'll look at the most recent stimulus checks in 2020-21 and 2008-09.
The ARPA was a $1.9 trillion stimulus plan that included $1,400 checks for adults and each of their dependents that people started receiving in mid-March. Single filers with adjusted gross income (AGI) of more than $80,000, heads of household with AGI of more than $120,000, and married, jointly filing couples with AGI of more than $160,000 did not receive checks.
The payments were lowered in increments for single filers earning $75,000–$80,000, heads of household earning $112,500–$120,000, and joint filers earning $150,000–$160,000. People in those categories earning less than $75,000, $112,500, and $150,000, respectively, would receive the full $1,400.
A supplemental appropriations bill signed into law on Dec. 27, 2020, resulted in $600 checks being sent to individuals—or $1,200 for joint filers—as well $600 for each dependent child. The money went to everyone who had received money because of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020. The Internal Revenue Service began making the payments on Dec. 29, 2020.
In March 2020, Congress included stimulus checks in the CARES Act. This $2 trillion aid package aimed to help those impacted by the coronavirus pandemic.
The CARES Act called for a $1,200 check to be sent to eligible individual adults earning up to $75,000 and double to couples earning up to $150,000. A person filing as head of household could earn up to $112,000 and still receive the $1,200 check. The income level was based on 2019 adjusted gross income (or 2018 AGI if you hadn't filed your 2019 tax return). Eligible families received an additional $500 for each dependent child.
People with higher incomes received smaller rebates—$50 less for every $1,000 they made over the limits. Payments phased out completely at $99,000 for single filers without children and $198,000 for couples without children.
On Feb. 17, 2009, Congress signed the American Recovery and Reinvestment Act (ARRA) into law. It called for sending out $250 stimulus checks to beneficiaries of government retirement or disability payments, for a total of $14.2 billion. The one-time payment went out to recipients of Social Security and Supplemental Security Income, Railroad Retirement Board benefits, and veterans disability or pension benefits in May 2009.
Instead of stimulus checks, most taxpayers received a reduction in their federal income tax withholding called the Making Work Pay Credit. Workers' total withholdings for the 2009 and 2010 tax years were reduced by 6.2% of their earnings, for a maximum tax cut of $400 for single filers or $800 for couples filing jointly. The tax cut was reduced or eliminated for individuals making more than $75,000 and couples making more than $150,000.
The Economic Stimulus Act of 2008 resulted in stimulus checks totaling about $120 billion going to taxpayers starting in May 2008 under President George W. Bush. It rebated taxes on the first $6,000 of income for individuals or the first $12,000 of income for couples. Individual taxpayers received up to $600, and married couples filing jointly received up to $1,200. Households with children received $300 per dependent child.
Rebates were reduced or eliminated for those with higher incomes, starting at $75,000 for individuals and $150,000 for couples. Those with incomes higher than $95,000 for individuals or $190,000 for couples did not receive a check.
Around 20 million retirees on Social Security and disabled veterans also received checks for $300 if they earned at least $3,000 in benefits in 2007. Couples in those categories received $600.
None of the stimulus payments from 2008 to 2021 was a loan that needed to be repaid.
Are Stimulus Checks Effective?
Since the ultimate goal of any stimulus package is to restore economic stability, inspire consumer confidence, and increase spending, stimulus checks have to be evaluated on those critera and compared to other forms of stimulus.
As an argument for direct payments over tax credits, a 2011 study by the National Bureau of Economic Research found that the direct payments of 2001 (an early stimulus check program under George W. Bush) and 2008 were more effective at sparking spending than the withholding reductions. of 2009.
Of course, a complete analysis of the effectiveness of stimulus checks has to include their long-term impact on the federal deficit. A 2012 study by the Mercatus Center at George Mason University found that, from 1950 to 2011, per-capita government spending had increased significantly. Many economists question whether this spending is effective and, ultimately, whether economic stimulus payments result in returns that outweigh the costs.
- Stimulus checks are a form of direct payment from the government to citizens during periods of economic downturn.
- These payments are designed to stabilize the economy and encourage spending.
- This form of economic stimulus has become more popular in recent years with four different stimulus checks going out from 2008–21.
- The effectiveness of stimulus checks is a matter of significant debate.