Stimulus check fine print: A new formula could change your $1,400 payment - CNET

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The stimulus check formula determining how much money you get looks likely to change for a third payment.

Sarah Tew/CNET

The most important factor in the size of your third stimulus check -- and whether you get the $1,400 payment, much more, much less or none at all -- comes to a head in whichever equation is part of the final $1.9 trillion stimulus bill. It was true for the first two payments, and it's especially true for the upcoming check.

Once again, the IRS will need to recalibrate its calculations to set of variables that's different in key ways from the first two, for example, by redefining certain stimulus income limits or who counts as a dependent (by the way, here's how the new check compares to the $600 and $1,200 payments so far.) While the stimulus bill isn't law yet -- and the details about the check could change -- we have enough to go on from the version of the bill that passed the House.

If the new check is approved as is, a family of four could get $5,600, versus the maximum $2,400 they received from the $600 second check. We'll further explain below how it works. To keep you updated, here are the top things to know about stimulus payments today, including the timeline for receiving a third check and what happens when and if a third check is approved during tax season. This story is updated regularly.

Stimulus check formula: Key things to know

Before we dig into how a potential third stimulus check may change the equation and what the outcome would mean for you, here's how it works. In general, your tax return is one of the most important factors in determining your stimulus check total. The other factors include your adjusted gross income, or AGI, and the stimulus check formula. You can still qualify for a stimulus check if you're a nonfiler who doesn't pay taxes too.

The major variables the IRS plugs into the stimulus formula are:

• Your AGI per your 2019 or 2020 federal tax returns.
• Upper limits for single taxpayers, heads of household (for example, a single person with at least one child) and married couples filing jointly.
• The number of eligible dependents you claim.
• "Reduction" or "phase-out" rate -- the amount your total would drop for every $1,000 you make above the income limit that allows you to qualify for the full check amount. In other words, this part of the equation calculates a partial payment if you don't qualify for the full amount.

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How the third stimulus check 'targets' your income

The recent proposal to "target" the $1,400 stimulus check would keep the highest earners from receiving a partial payment. If the proposal is adopted, the qualifications would be:

• Full $1,400 amount if you earn under $75,000 (single taxpayer); $112,500 (head of household); $150,000 (married).
• Disqualified at $100,000 (single); $150,000 (head of household); $200,000 (married).
• Phase-out rate increased to preserve this upper limit.
• These high earners would not receive partial checks even if they have dependents.

Dependents could multiply your check total

With the previous two stimulus checks approved in March as part of the CARES Act and then in December, it was possible to get a partial payment even if you exceeded the maximum income limit -- if you had dependents. For example, say a married couple with an AGI of $200,000 claims two dependents. With a $1,400 stimulus check that uses the previous formula, that family could still get a $600 check.

That's because the previous formula begins with the largest amount you'd be eligible to receive (for example, $1,400 per single taxpayer or $2,800 for joint filers) and adds $1,400 for each qualifying dependent. Then it reduces the total possible sum according to your AGI and the phase-out rate.

It's a little like starting a test with a perfect 100 point score and subtracting a point for every question you miss, rather than starting with zero points and adding them all up at the end of the test.

Measuring your stimulus check payment is no easy task.

Angela Lang/CNET

But in this case, the dependents you name can start you at a higher value, say 110 points in our classroom example. So by the time you subtract "points," you may still get more than people who don't have dependents -- even if your AGI is above the maximum cap. The more child dependents you have, the higher your starting value and the higher your ending value, too.

The proposal to target stimulus checks would set a firm cutoff, which means that it would start by evaluating your AGI. If you're over the limit, it wouldn't matter how many dependents you have. You still wouldn't be eligible for a check.

On the other hand, a family with a large number of dependents and an AGI within the boundaries could still potentially receive a large partial payment, as long as they come in below that absolute upper income limit. You can experiment with our stimulus calculator.

Phase-out and reduction rate: Why they matter and how they work

A sliding scale is involved here. With the second check, for example, if your AGI was less than $75,000 as a single taxpayer (that means no kids), you should have received the entire stimulus check total of $600. If you made more than that, the size of your check would diminish until $87,000, after which point you'd be ineligible.

For the $1,400 stimulus check -- note this could still change -- you might receive the full $1,400 amount if you earn under $75,000 a year (your AGI as a single taxpayer), with diminishing returns up until a $100,000 cutoff. You'd receive a partial check for an AGI between $75,000 and $99,900. Again, you can see the differences in our $1,400 stimulus check calculators.

For heads of households and married couples with dependents, these other household members are an important part of the equation -- up to a point (see above).

For more information, here are the top things to know about stimulus checks. And see how SSDI recipients and checks, older adults and retirees and people who aren't US citizens or Americans who don't live in the US could also qualify, including families with mixed-status citizenship.

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