hands exchanging stack of $100 bills

Advising Clients on IRS Stimulus Package Payments


As government stimulus payments begin to roll into qualified clients' bank accounts, financial planner, CPA, CFP Kelley C. Long has some facts and advice on how they work and what to advise clients on the money's use.

Apr 13th 2020
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In the past three weeks, 16.6 million Americans have filed for unemployment aid. And now the IRS is starting to send economic stimulus payments to eligible US taxpayers to help ease the financial burden of the COVID-19 pandemic.

In this article, you will find some suggestions on how to advise clients on the best use for the money to protect their financial future. Also included are some lso see below for FAQs on the payments.

How to Prioritize the Use of Stimulus Money

There are many options Americans can choose to spend the stimulus money that the IRS is getting ready to send eligible taxpayers. In fact, the IRS launched another tool allowing people who normally don’t file taxes to provide their bank account information to get their payment by direct deposit versus waiting for a mailed check. The additional feature is unavailable if the payment has already been scheduled for delivery.

That said, once they are received, using these funds to help weather this unprecedented economic shutdown with minimal long-term impact to your clients' personal finances as possible will pay dividends in the long run. With that in mind, here's how our CPA experts recommend deciding what clients should to do with their payment:

1. Use it to pay essential expenses

If you're in a position where your current income isn't enough to pay your monthly bills including food and medication, then the payment is best used to help with that first. Be strategic with which bills you pay, taking into account the temporary relief available for things like federally-backed mortgages (including FHA loans) and federal student loans – you may be able to skip those payments without hurting your credit.

If you’re in financial distress and your mortgage payment is not relieved under the various laws passed, or you are a renter and your landlord is not able to work with you to modify your lease, then the payment may best be used to keep a roof over your head so pay that bill first.

If you're able to take care of your housing payment, but don't have enough to pay all your other bills, then use your payment for other essential expenses such as a car payment or utilities (most local governments are not allowing utilities to shut off service right now, but you'll want to stay caught up if you can).

Take a look at all your upcoming bills and figure out which ones would hurt your credit and future finances the most by skipping a payment, and consider using your payment for those bills if you can't get out of it without excessive interest, fees or a balloon payment due later this year.

Finally, if you have to skip a payment or make a late payment, make sure you contact the company FIRST. If you're not able to get through on the phone, document the attempt and send something in writing. It could take a while for everything to get worked out, but you'll want a record of your attempts to follow the rules to avoid future issues.

2. If they’re able to pay essential expenses, use the payment to boost an emergency fund

Lots of people are still able to pay their basic bills for now, but may be worried about a future loss of income if the US heads into a more extended recession. If you don't have a fully-funded emergency fund (at least 3 – 6 months of expenses, depending on how easy it would be to find work if you're laid off), then consider saving your stimulus payment to possibly offset future expenses.

3. If you have sufficient savings, consider paying down high-interest debt

If you've got enough in savings to sustain you through a potential job loss, but you still have higher interest debt such as credit cards or private student loans, your payment would have the most impact paying this down faster. 

And, even if you have debt with lower interest rates but you have sufficient savings, consider paying off that debt as well. Often, you’re paying more interest on your debt than any interest you’d receive in a savings account, so financially speaking paying off debt is often wise.

4. Finally, if all the above boxes are checked, use the stimulus check to fund a retirement plan or a Health Savings Account (HSA), if eligible.

The extension of the federal tax filing and payment deadline to July 15, 2020 also extends the amount of time to make contributions to IRAs and HSAs for 2019. Additionally, many taxpayers can make contributions to their company’s 401(k) programs (some even provide company matches).

These savings options are excellent ways to put money aside for retirement or medical expenses. Plus, many savings vehicles allow for tax deferrals or deductions.

Frequently Asked Questions About How the Payments Work

1. What do I need to do to get my stimulus check?

Check out these FAQs from the IRS. They discuss who is eligible to receive the stimulus payments, how much to expect and other details that may apply to you.

Most people should receive the stimulus payment in the next few weeks (around mid-April), which is really an advance payment that they would have received on their 2020 tax return that will be filed in 2021. If you’ve already filed your 2019 return, the IRS will base your stimulus payment on your 2019 tax return.

If you haven’t filed your 2019 return, the IRS will base your stimulus payment on your 2018 tax return. If you’re behind on tax filings for multiple years, the IRS is encouraging folks to file as soon as they can to receive the stimulus payment.

Keep in mind that Social Security recipients and railroad retirees who are otherwise not required to file a tax return are eligible to receive the stimulus payment and will not be required to file a return. The IRS will use the information on Form SSA-1099 or Form RRB-1099 to generate the payment.

The payment will be deposited into the bank account associated with the taxpayer’s most recent tax return. If there is no bank account information with a previously filed tax return, the Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail. Otherwise, a check will be sent to the address on record with the IRS. Keep in mind that some officials estimate it could take several months for checks to be received.

Other things to consider:

  • If your income was over the limits for your most recently filed return but ends up below the limits at the end of 2020, you'll receive your payment as a refund when you file your 2020 taxes.
  • If you do not have a US Social Security number, you are not eligible to receive a payment.
  • If you weren't required to file due to income below $12,200 ($24,400 for married couples) or were otherwise not required to file a federal income tax return for 2019 (but you don't receive Social Security or railroad retirement), the IRS has provided a simple free online form to fill out to make sure you get your payment.
  • You can also enter information on this form for any qualifying child under age 17, which will increase your payment.

2. How much will I get?

Check out this flyer from the IRS for the specifics.

3. Will my payment be taxable?

No, these payments are not taxable. They are a tax credit for 2020 that is being advanced to eligible taxpayers, so if you don't receive a deposit or check and are eligible based on 2020 income, you will receive your credit next year when you file your 2020 return. Regardless, these are NOT taxable payments.

4. What other financial help is available to me?

The federal government, along with most states, have been passing laws and issuing orders on a regular basis to help those most affected by the COVID-19 crisis make it through with as little long-term effect on their personal finances as possible. Do your research on what's out there before you simply stop paying bills.

For ideas on obtaining cash in a pinch, review these options. Check your local government's coronavirus website for specifics on the help that's available in your community and make sure you're reaching out to any bill providers if you think you won't be able to pay on time to find out your options ahead of time.

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