The income limit on the second stimulus check is likely to be over $ 40,000

If you’ve been reading about the upcoming stimulus bill, which we hope will appear sometime next week, you’ve probably seen a lot of articles on how Senate Leader Mitch McConnell (R-KY) mentioned that it could only go Americans less than $ 40,000 a year.

While it is not clear where the income limit will be, a “person familiar with the talks” told Bloomberg that “a limit at that level is not considered likely.”

Let’s look for clues as to why this is the case:

Why $ 40,000?

$ 40,000 seems like such an arbitrary number, why does it keep showing up?

According to Federal Reserve Chairman Jerome Powell, 40% of American households earning less than $ 40,000 lost their jobs in March. It’s a staggering number that comes even more when you look at our unemployment charts.

At an event in his home state, McConnell said, “I think the people who have been hit hardest are the ones who make about $ 40,000 a year or less.” It was widely seen as an indication of where his thinking was on an income limit for future assistance.

Compare this to the amounts in the Heroes Act, spearheaded by Democrats in the House of Representatives, which offered a stimulus check similar to the Care Act:

• $ 1,200 for individual taxpayers ($ 2,400 for joint taxpayers) earning $ 75,000 or less ($ 150,000 or less for joint taxpayers)
• Those who earn more than the limit would have their checks reduced by 5% for amounts above the limit
• You get an additional $ 1,200 per dependent with a limit of three

The income limits of the Hero Law are similar to the Care Law, but there are two notable differences. First, the definition of dependent was expanded to include many excluded in the first bill. It also increased the amounts for dependents to $ 1,200.

While many compare this aspect of the Hero Law to the Care Law, it is clear that the Hero Law created much greater stimulus verification. Income limits may be the same, but base amounts are higher.

Why will the limit be higher?

In numerous interviews, President Trump has “generous” encouragement and, in an interview on Fox Business Network, he said that “I actually support a larger number than Democrats.”

Given that the only official proposal on the table was put forward by Democrats on the Heroes Act, it seems unlikely to me that the President will endorse a bill with a lower income limit of $ 40,000.

When the average income of all Americans (2018 US Census data) is just over $ 63,000, a limit that is 50% lower than the average would be pretty low, almost too low.

If the limit were $ 40,000, millions of Americans would be excluded from upcoming stimulus controls.

Potentially lower limit but greater phase-out range

Another possibility, which has not been publicly mentioned anywhere, is that the next check would be structured like the Hero Act, but it has a much larger elimination range to offer the greatest need to those with the lowest incomes. You could have a lower income limit of $ 40,000, but phase out at less than 5%.

In the Heroes Act, the range started at $ 75,000 and your check was reduced by 5% for your earnings over $ 75,000. It is possible that on the next invoice, the limit will be reduced to $ 40,000, but with the gradual elimination it will be reduced to only 2% of the income above that limit.

This means that a single filer would need to earn less than $ 100,000 to qualify for a (small) check, which is not far from the upper limit of the $ 99,000 Care Act.

This preserves a larger check for those who earn less but still offers help to those with larger families because phasing out would increase in size.

We will have to wait and see the official word before knowing for sure how the next check is structured.

Additional resources

The next stimulus project will likely have these three main changes

Second-stimulus controls must be recurring and direct, 156 leading economists urge

The next $ 600 federal unemployment benefit is likely to be smaller

Second stimulus check update: here is everything we know now

Where’s my tax refund? Why it can be late and when to expect it

IRS will pay interest on your ‘late’ tax refund

The chances of a second stimulus control are much better