There's still a lot of confusion about stimulus checks

For a program that seems to have clear-cut limits for eligibility, stimulus checks appear to have puzzled a lot of people.

Part of the problem was determining eligibility, says Aaron Klein, a fellow in economic studies at the Brookings Institution, a non-partisan research group in Washington, D.C.

“The structure of the stimulus payment is this refundable tax credit for this year,” Klein said.

Because the government couldn’t know people’s taxable income for 2020, it told the IRS to rely on information from a previous year.

Put simply, the stimulus checks don’t always reflect someone’s current reality.  

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“Income is far more variable for many families than policymakers appreciate,” said Klein, who is also policy director of Brookings’ center on regulation and markets.

As the nature of work changes, income volatility has been rising, Klein says. Policymakers assume that wages tend to rise slightly each year and people will earn a percent or two over what they made previously.

“That is based on the world of generations ago,” he said. “One reason policymakers have failed to appreciate the growth of income volatility is that they themselves have the most stable incomes and jobs.”

In general, benefit programs can’t address instability in wages because they don’t factor in income drops or losses, the Aspen Institute found in its study on income volatility.

Remember, too, Klein says, a number of side hustles have been wrecked by the pandemic. People who worked at sports stadiums or in events, such as weddings, to pick up extra cash, can no longer depend on that secondary income.

The result: Some people didn’t get a check even though they would qualify based on current circumstances.

That is what happened to Cam Loy, 21, who as a college student was listed as a dependent on her mother’s 2018 tax return and did not receive a stimulus payment. 

Now the situation for Loy, a lab technician in Baton Rouge, Louisiana, is completely different. She will file her own tax return for 2020. She is no longer a dependent on anyone’s tax return. She meets the income eligibility requirements for a stimulus check.

“A lot of my classmates are in the same situation,” Loy said.  

There’s good news for people like her says Janet Holtzblatt, senior fellow at the Urban-Brookings Tax Policy Center, which independently analyzes tax issues, in Washington, D.C.

“Think of the stimulus payments people are receiving this year as an advance on their situation,” Holtzblatt said. “In 2021, she’ll be able to get the payment — a disadvantage, in that she’s not getting it this year.”

“It would be a refundable tax credit,” she said, that would either reduce her tax payment or give her a refund. “Even if she owes no taxes next year she will get the full amount.”

There’s also confusion over when to apply income limits.

Michelle Cox, 37, and her husband had a big improvement in their income this year but received the full stimulus amount for a couple with two kids based on their much lower income in 2018 and 2019. 

But Cox, a nurse practitioner in Seattle, is anxious that they will have to repay the money based on their higher income. Instead of using it, they stashed it in a savings account.

“They definitely don’t make it easy to understand,” she said. 

In some cases your refund can be offset by money you owe, Holtzblatt said, such as an existing child support order.

“The Treasury Department is able to take the economic impact payment and repay your child support,” she said.

But people who now earn more will not have to repay it, Holtzblatt says.

The FAQ section on the IRS site is clear there is no provision to return any payments because of higher earnings in 2020. 

Among the questions the IRS answers on their site:

• What if I lose my check?
• I think the amount of my check is wrong. What do I do? 
• I moved. Will the check still get to me?
• What if I don’t have a bank account? 

One group having great difficulty receiving payments, Holtzblatt says: those whose income is below poverty level and who didn’t file a tax return. It is still possible to receive the assistance, but you’d have to go to the IRS website and input your information as a non-filer.

First you’d need to know that you have this option, and you can only do it by computer — a challenge for many who are non-filers, Holtzblatt says.

“The very conditions that gave rise to these payments also meant the places you’d go to use a computer were closed,” she said.

Additionally, the fastest way to get a payment is by direct deposit, and many people at this income level don’t have bank accounts.

People who qualify can still get the payment this year but need to apply before Oct. 15.

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.