Will We Have To Pay Back The Stimulus Check Money?

This week, the IRS began direct depositing stimulus checks, and some 80 million Americans should receive their checks today. Even if you haven’t received yours yet, you can see the status of your payment on the new IRS tracking tool, though it may currently be overloaded due to high demand. But as you breathe a sigh of relief seeing the payment in your account, you may still be confused about whether it comes with strings attached, or whether you’ll have to repay it down the road.

The short answer is that you don’t have to repay the stimulus money to the federal government in any way. It’s not a loan. However, after the IRS disburses the money, you may face a roadblock in banks and private debt collectors garnishing your stimulus payment. Read ahead to find out who can touch your stimulus check, and for what reason.

Whether you receive the maximum amount or not, no one’s stimulus payment will be added to their taxable income. You will not have to worry about paying additional taxes next year. The payment itself won’t be taxed, either. If you’re an individual filer and make less than $75,000 a year, you should see the full $1,200 in your bank account. If you’re a married filer, you should see $2,400 if you and your spouse make less than $150,000. If you have children, you should see an extra $500 for each child.

If you owe taxes, don’t worry. The IRS will not take any of the stimulus money for back taxes. If anyone approaches you claiming to be from the IRS saying that your stimulus payment will need to go to the taxes you owe — that’s a scam. The government is also not permitted to take your stimulus money for defaulted student loans. If you happen to owe child support, though, your check will be reduced to cover your late child support payments. 

Unfortunately, the above applies only to federal and state debt. Experts have warned that banks may be able to garnish your stimulus payment for private debt collection, with a top U.S. Treasury official reportedly telling banks that “there’s nothing in the law that precludes that.”

If you have outstanding loans or owe bank fees, your bank could automatically take the money to offset those debts. Because the stimulus payments are categorized as refundable tax credits and not federal benefits, they can be garnished for debt. Congress made an exemption on garnishment for federal and state debt when it passed the CARES Act, and it also gave the Treasury the authority to write additional exemptions for private debt. Senators Sherrod Brown of Ohio, Elizabeth Warren of Massachusetts, and Ron Wyden of Oregon wrote a letter to Treasury Secretary Mnuchin on April 3rd informing him that private debt collectors can garnish stimulus money. So far, the department has made no move to write an exemption protecting the checks.

The American Prospect reports that it reached out to Wells Fargo, JPMorgan Chase, Bank of America, Citibank, and U.S. Bank about whether they would use the stimulus check to collect debts and fees. JPMorgan Chase said it would not use the money for negative balances on charged-off accounts, specifically. Wells Fargo said in a statement that it would be "pausing for 30 days the collection of negative balances existing at the time when stimulus payments are deposited." According to The American Prospect's report, the other three banks have not responded at time of writing.

So what can you do to protect your money if you have private debt or owe other bank fees? Check if your state has laws prohibiting banks from garnishing your stimulus check. Several states, including Texas, Massachusetts, and Las Vegas, as well as Washington, D.C., have recently passed laws to protect against this. Ohio and Illinois have also announced that stimulus payments will not be taken by private debt collectors.

Make sure you’re aware of which bank account your payment will be deposited to, keep a close eye on it, and move it as soon as it comes in. You could also try redirecting the payment to a credit union using the IRS tool or on your 2019 tax return, if you haven’t filed yet. “Creditors are less likely to serve garnishment orders on smaller institutions,” Lauren Saunders, an associate director at the National Consumer Law Center, said in an interview with MarketWatch.