The Covid Economy

Fewer people may qualify for the $1,400 stimulus payments. Here's why

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President Joe Biden meets with Democratic senators to discuss his $1.9 trillion American Rescue Plan in the Oval Office at the White House on February 03, 2021 in Washington, DC.
Stefani Reynolds | Getty Images

Would your household be affected if the income eligibility limits for the next stimulus payment were lowered? CNBC Make It would like to talk to you. Email reporter Alicia Adamczyk at alicia.adamczyk@nbcuni.com.

After promising another round of stimulus payments worth $1,400 to many Americans, President Joe Biden has reportedly signaled that he is open to restricting the number of people who would receive them, based on their income.

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Democrats are reportedly considering sending the $1,400 payments to individuals earning up to $50,000, and $2,800 to married couples earning up to $100,000 (plus $1,400 per child), according to The Washington Post. That's a decrease from the first and second round of checks, which started phasing out at $75,000 for individuals and $150,000 for couples.

Meanwhile, Republicans have proposed sending $1,000 checks to individuals earning up to $40,000 per year ($80,000 for couples), phasing out completely at $50,000.

The Democrats' plan is not public yet, so many details are not available, including what year the income requirements would be based on.

While 85% of Americans qualify for a payment under the earlier income threshold, according to The Washington Post, 71% qualify when it is decreased to the $50,000 limitation.

Biden and many Democrats believe a third round of payments is needed to help cash-strapped families pay their bills and other expenses. But some have said a more targeted approach would get the money to families most in need.

Saving vs. spending stimulus checks

While lower-income families need the payments to put food on the table, many middle-class families saved their first and second payments. Opportunity Insights, a nonpartisan economic research institute at Harvard University, estimates that "households earning more than $78,000 will spend only $105 of the $1,400 stimulus check they receive," based on how those families spent the prior payments.

"Targeting the next round of stimulus payments toward lower-income households would save substantial resources that could be used to support other programs, with minimal impact on economic activity," write economists Raj Chetty, John Friedman and Michael Stepner, the authors of the Opportunity Insights report.

At the same time, the additional $1,400, on top of the $600 payments sent earlier this year, would increase the incomes of the poorest 20% of Americans, those earning less than $21,300 in 2020, by 29%, according to a report from the left-leaning Institute on Taxation and Economic Policy.

Stimulus checks are very popular among the American public

Stimulus checks are extremely popular among the American public. Almost 80% are in favor of the $1,400 checks, according to a recent Quinnipiac poll. That's compared to the 68% who support Biden's $1.9 trillion stimulus relief proposal generally. The relief plan includes a provision for the so-called economic impact payments.

Biden and other Democrats promised a third round of payments during the 2020 presidential campaign, and made it a central argument in favor of voting for Democrats in the Georgia Senate runoff race, which gave control of the upper chamber to their party.

While fewer households would receive checks based on their income, others would receive one for the first time since Biden's proposal expands eligibility for a payment to adult dependents. Previously, those 17 and over who were claimed on someone else's taxes did not qualify for a payment. This affected many college students, disabled adults and elderly Americans.

Additionally, mixed-status families — in which some members have Social Security numbers but others, typically one or both parents, do not — would also qualify. These families were excluded from the first round of payments under the CARES Act, but included in the second round.

Finally, many of the lower-income households that do qualify for the third check will likely receive a bigger overall payment, given it is expected to be worth up to $1,400 per individual and $1,400 per dependent, far more than the previous two payments.

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