A stimulus check is a direct payment made by the government to its citizens. Unlike tax credits, which come as deductions from taxes owed during tax filing, stimulus checks are designed to give immediate relief to taxpayers and encourage stability and spending during an economic downturn.
Although direct stimulus payments have been relatively uncommon in U.S. history, they have become more popular in recent years, Since 2008, the federal government has sent economic stimulus payments to many or most Americans four times. Let’s look at these recent stimulus activities to understand what stimulus checks are, how they work, and how effective they have been.
Definition and Examples of Stimulus Checks
Stimulus checks are payments sent directly to citizens via paper check or direct deposit. They are often part of larger stimulus packages initiated by the federal government during an economic crisis such as the Great Recession of 2008 or the COVID-19 pandemic.
These broader stimulus efforts may include a variety of initiatives, including tax and fiscal policy changes, business tax credits, and more. What makes stimulus checks unique is that they’re given directly and immediately to taxpayers, often with few strings attached.
Consumer spending often slows down during an economic crisis, and citizens may have trouble paying for basic needs like their mortgage, rent, or food. Stimulus checks are designed to increase consumer confidence and stimulate spending.
How Stimulus Checks Work
Specific criteria for stimulus checks vary depending on the legislation Congress passes for each specific payment. They can be sent to all taxpayers or only to a subset based on income limits. In some cases, Americans have had to meet other criteria, such as being a government employee, in order to receive a stimulus
Whatever the specific critiera, once the legislation is passed, the IRS begins sending checks or direct deposits to stimulus recipients. These payments come out of the U.S. Treasury reserves, and the government counts on increases in spending, hiring, and overall gross domestic product (GDP) to offset the cost in the future. They are typically not treated as taxable income.