Second Stimulus Check Update: Taxation and Mode of Distribution

While politicians still support the second set of stimulus checks worth $1,200 for each individual, eligible Americans will still have to wait as talks of a new stimulus relief bill crawl along to a standstill.

Currently, the Senate is on its recess until after Labor Day ends while White House officials are coming back this week. More and more people are calling out to political leaders to return and restart negotiations.

According to CNET, the Democratic National Convention (DNC) will start on Monday and a week later marks the beginning of the Republican National Convention (RNC). Both of the events complicate the timeline of stimulus talks further.

If politicians agree to pass a bill into law, Americans can use the first stimulus check to when the second one could come. The Republican-backed proposal, the HEALS Act, is based on the original CARES Act in how it structured a new set of direct payments. This suggests that stimulus checks could come in the same way but would be distributed faster than before.

Taxable stimulus checks?

Individuals who will receive their stimulus payments will not be taxed for their amount. The Internal Revenue Service (IRS) does not consider the direct payment a source of income, and its distribution would not increase the amount people owe when they file for their tax return.

The first stimulus check faced some difficulties with individuals who had outstanding balances. Banks and private creditors had the option to seize the direct payment until debts were settled. The proposals for the second stimulus payment stops these establishments from holding the payments due to unpaid debts.

One thing of note, however, is that people that owe child support will not receive stimulus checks in both the CARES Act and the proposed HEALS Act. The Heroes Act provides a different opportunity for individuals who owe child support to receive stimulus checks.

Also Read: Will Second Stimulus Check Come Out This Month? Eligibility Could Change Who Gets the Money

Mode of Payment

Documents show that 75 percent of the first stimulus checks were given out as direct deposits to people's bank accounts, as reported by the IRS. In June, 120 million out of 159 million payments were distributed by direct deposit, 35 million were given by check, and the remaining 4 million distributions were sent in the form of a prepaid debit card.

The IRS will use people's direct deposits that are set up with the government to distribute the stimulus checks if they have it arranged. The most significant advantage of using direct deposits is that citizens would get their payments faster than those who used other modes of payment.

Second stimulus checks

The main factor that is holding back the passing of the second round of stimulus checks is the amount of money the United States government would have to release to provide financial support to eligible citizens.

Democrats are supporting the Heroes Act that proposes to distribute $3 trillion and has been in discussion since May while the Republican-led Senate is arguing to keep the total cost to around $1 trillion.

According to Forbes, the Senate rejected the Democrats' $3 trillion Heroes Act with Mitch McConnell, the Senate leader, calling the proposal a "wish list."