What Is a Stimulus Check? Definition, How It Works, and Criticism

What Is a Stimulus Check? Definition, How It Works, and Criticism

What Is a Stimulus Check?

What Is a Stimulus Check?

A stimulus check is a payment made to a taxpayer by the U.S. government. Stimulus checks are made by paper check or through direct deposit. They are intended to encourage spending during times of economic distress and thus give the economy a boost. Stimulus checks can be part of a larger federal stimulus package designed to support the economy, which was the case with the stimulus payments that were part of the CARES Act in 2020 and the American Rescue Plan in 2021.

Understanding Stimulus Checks

Stimulus checks are direct payments made by the government to individuals during times of economic distress. People can opt to receive a paper check or have their stimulus payment deposited directly into their bank accounts. They are meant to boost consumer confidence and encourage spending by going to taxpayers who, in turn, would use them to drive revenue at retailers and manufacturers. As such, they are meant to spur the economy.

Not everyone qualifies for a stimulus check, which means there are general eligibility requirements in order to receive one. For instance, U.S. citizens and residents qualify as long as they are not claimed as dependents on anyone else's tax returns. The government may also impose income thresholds based on the tax filing status of individuals so if a single filer's adjusted gross income (AGI) is too high, they don't qualify.

These checks have been used to boost the economy on several occasions in the United States. They vary in amount according to the taxpayer's filing status. Joint taxpayers generally receive twice as much as single taxpayers. In some instances, those with unpaid back taxes saw their stimulus checks automatically applied to their outstanding balance.

Research posted on the National Bureau of Economic Research (NBER) found that the means of delivery of fiscal stimulus makes a difference to the overall spending patterns of consumers. Implementing fiscal stimulus by sending checks resulted in an increase in consumer spending activity. However, applying tax credits equal to the amount of money provided in a stimulus check did not result in an equivalent increase in consumer spending activity.

1National Bureau of Economic Research. "The Effectiveness of Fiscal Stimulus Depends on How It Is Delivered."

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