Millions Would Miss Out on Second Stimulus Check With $40,000 Income Cap

Senate Majority Leader Mitch McConnell (R-KY) sparked excitement on Monday when he suggested a second round of stimulus checks was on its way. But he also fueled speculation that this time there would be a lower income threshold for the cut-off.

"I think the people that have been hit the hardest are people who make about $40,000 or less. Many of them work in the hospitality industry...That could well be a part of it," McConnell said, The Hill reported.

A Federal Reserve report found that 39 percent of people with a household income below $40,000 in February had lost their job in March, and a further six percent had their hours reduced or took unpaid leave.

Many sectors have been hard-hit during the pandemic, but leisure and hospitality businesses suffered acutely because of lockdowns and quarantines, laying off staff and closing their doors.

The first round of stimulus checks, known officially as economic impact payments, started to taper off from the full $1,200 amount for individuals earning $75,000 or more a year. It rose to $112,500 for head of household filers and $150,000 for married joint filers.

Those checks arrived in the middle of lockdowns due to the coronavirus pandemic. Now, previous restrictions are eased in many places, and economies are reopening, allowing some to go back to work, which is reflected in better-than-expected employment data.

A new surge in infections across states that were reopening may yet thwart America's attempt to kickstart the economy again. Some states, such as Texas and Arizona, are already rowing back towards locking down again.

But if unemployment continues to fall as states reopen, Republicans in Congress will see a weaker case for more checks. Many of them fear it disincentivizes returning to work and favor a more targeted policy, such as back-to-work bonuses or help for those most in need.

McConnell's specific reference to an income threshold indicates this is the direction of travel in talks about a fifth stimulus package. Income data from the U.S. Census Bureau suggests that millions of Americans could miss out on a full second check if so.

In early June, the IRS said it had sent out 159 million stimulus checks worth $267 billion to Americans, not including the $2.5 billion for those who live in U.S. territories, which means the figure is likely even higher.

According to the most recent census data available, there were 131 million Americans with an income of $39,999 or less in 2018.

Were $40,000 the new income threshold, millions of Americans might not receive a second stimulus check for the full amount, having done so the first time around.

However, there may be a silver lining. Those who did not qualify for the first check because their income was too high in the previous filing year can still claim it back as a tax credit at year-end if their 2020 income is below the eligibility thresholds.

A second check could be structured in the same way, though it would mean a months-long delay for those who need the money right now but whose earnings in previous tax filings were too high.

The details of a second stimulus check remain unclear and under discussion in Congress. Democrats want another check and Republicans are increasingly on board with the idea in some form.

President Donald Trump is also behind another payment and has suggested it should be larger than the previous $1,200 maximum check, which could soften the effect of tapering it off at a lower income threshold.

The White House and McConnell's office have been asked for comment.

Mitch McConnell second stimulus check Senate Trump
Senate Majority Leader Mitch McConnell (R-KY) speaks during a press conference following the weekly Senate Republican policy luncheon in the Hart Senate Office Building on June 30, 2020 in Washington, D.C. Stefani Reynolds/Getty Images