The Internal Revenue Service has given a clear indication that the absence of federal stimulus checks in 2022 will affect tax refunds in 2023. This has to be taken into consideration when you file your 2022 federal income tax returns in the first quarter of 2023.
The Three rounds of Economic Impact Payments, also known as the stimulus checks, were disbursed during the period of the pandemic and its immediate aftermath.
Between March 2020 and April 2021, a significant amount was paid by the federal government as direct stimulus checks to families and individuals amounting to over $800 billion as combined payments.
These payments were intended to save low and moderate-income families as millions lost their means of income immediately after the pandemic shutdown was declared in the first quarter of 2020. These payments were dispersed to all but the highest-income individuals and families. The payments were linked to the Adjusted Gross Income of taxpayers against their 2019 income tax returns and later against the 2020 returns.
The payments were phased out beginning with the AGI of $75,000 for individual filers and $150,000 for married couples filing jointly. The first round was provided under the CARES Act, the Coronavirus Aid, Relief, and Economic Security Act, signed in March 2020. It provided $1,200 to each adult with an additional $500 for each child below the age of seventeen years.
The 2nd round of stimulus checks was sanctioned in December 2020 and was dispersed in January 2021. This round gave $600 for each adult and an additional $600 for children. The last round of federal stimulus checks came after a change of president as Joe Biden took over in January 2021 after weeks of uncertainty as outgoing president Trump refused to relinquish power and tried to manipulate the system to rule in his favor.
The third round of stimulus checks was under the American Rescue Plan Act, signed by President Biden n in March 2021. It was the largest of the three stimulus checks and gave $1,400 to individuals and also every family member including children.
For over a year, these economic impact payments provided the equivalent of over 125% of the median income for a household with an average of 4 members with two adults and two children.
Effect Of Economic Impact on Payments
The spending analysis of individuals and households showed that while the comparatively lower-income individuals and households who benefited from the stimulus checks used the money for immediate household needs, the higher income in the list of beneficiaries tried to save a part of the money, while some went for the purchase of products.
This spurt in the purchase of products is believed to be one of the reasons behind the record inflation that has troubled families and individuals for most of this year.
The government’s ability to inject cash quickly into the economy in the event of an emergency was thoroughly tested and by the third economic impact payment the administration has perfected the system.
While the first round of the stimulus check took around a couple of weeks to reach households, millions of beneficiaries received the third stimulus check within a week of the Rescue Plan bill being signed by President Biden in March 2021.
The whole exercise showed that fiscal policy could be effectively implemented and rapidly with minimal transaction costs. The use of electronic disbursement directly to the accounts of beneficiaries dramatically shortened the time taken between the signing of the bill and the stimulus checks reaching households and individuals.
For the first stimulus checks, it took around two weeks for the Treasury to send the first of the direct deposits. Over the subsequent rounds of stimulus checks, the gap between the signing of the bill that sanctioned the stimulus checks and the disbursement of the amount narrowed considerably. The gap was down to a week during the second round of stimulus checks.
For the third round of stimulus checks, this gap was down to just days after the legislation was signed, with millions of payments going out in just a day.
The first round of stimulus checks in the first quarter of 2020 provided much-needed liquidity to families to pay for their immediate necessities. They mostly spent the money on groceries, and other essential items while a certain percentage even managed to put aside some money for the future.
For the first time, such economic impact payments were not linked to a certain minimum income criterion nor were filers required to be taxpayers to get any federal rebate.
The pace at which the payments were sent led to a certain degree of error creeping into the payment process. People who had income sources open still managed to garner a part of the relief while many households lost out as they were unaware of the federal support.
Plugging Coverage Gaps Will Lead To Better Targeting Of Stimulus Checks In The Future
The authorities have sent out a letter to around 10 million residents who were denied the stimulus check for various reasons. Chief among them was that their income was below the minimum income required to file income tax returns.
Consequently, they were not in the records of the IRS and so they did not receive any rounds of the EIPs. Coverage gaps were evident related to differences in the filing of taxes, receipt of benefits from certain federal programs, and access to regular bank accounts.
In the event of a future crisis, the administration has decided that payments would be better targeted if households who had lost their income source or are in danger of doing so, were better identified and targeted for financial benefits.
Though the economic impact payments suffered from coverage gaps and delays, these were rectified with each successive round of payments. The EIPs successfully provided fast support to families directly, including those expecting unemployment insurance benefits.
Investment by both federal and state administration and their agencies would give a clearer picture of the workings of the stimulus checks and other forms of support during the pandemic and in the later months. This will allow a more comprehensive targeting in future emergencies. The stimulus checks can be used by future policymakers as an efficient and effective way to help people faster. Such people require quick aid and for whom other forms of support is insufficient or get delayed.
