$1,400 stimulus check formula: These details could change everything

The size of your stimulus payment is determined by a key equation the IRS uses. With the potential third stimulus check, that formula could change in more ways than one. Here's why that matters.

A finalized version of President Joe Biden's COVID-19 relief proposal could come to light this week, as the House Budget Committee begins the markup on the bill Monday. That means the third stimulus check Congress has been working on could look different from the first two rounds of stimulus checks. While the new payment is larger -- it sits at $1,400 per eligible adult and dependent -- how the IRS tweaks the formula it uses will determine how much money you and your household could receive. More precisely, the dollar amounts and income limits used in the equation by the IRS will determine whether you get a large payment, a partial amount or no stimulus check at all.

While we won't know the exact stimulus check formula for determining the size of a third stimulus check (here's how soon it could arrive) until Congress approves the $1.9 trillion relief bill, we do expect hard income limits that will exclude some people who got stimulus money in the first two stimulus rounds in 2020. 

For example, under the new plan, a family of four could get $5,600, versus the maximum $2,400 supplied by the $600 second check distributed in December and January. We explain how it works below. Meanwhile, here are the top things to know about stimulus payments right now, including what happens if a third check comes in the middle of tax season. This story is regularly updated.

This is how the stimulus check formula works

Before we dig into how a potential third stimulus check may change the equation and what the outcome would mean for you, here's how it works. In general, your tax return is one of the most important factors in determining your stimulus check total. The other factors include your adjusted gross income, or AGI, and the stimulus check formula. You can qualify for a stimulus check if you're a non-filer who doesn't pay taxes too.

The major variables the IRS plugs into the stimulus formula are:

• Your AGI per your 2019 or 2020 federal tax returns.
• Upper limits for single taxpayers, heads of household (for example, a single person with at least one child) and married couples filing jointly.
• Number of eligible dependents you claim.
• "Reduction" or "phase-out" rate -- the amount your total would drop for every $1,000 you make above the income limit that allows you to qualify for the full check amount. In other words, this part of the equation calculates a partial payment if you don't qualify for the full amount.

The third stimulus check could change the equation. Here's what we know

The recent proposal to "target" the $1,400 stimulus check would keep the highest earners from receiving a partial payment. If the proposal is adopted, the qualifications would be:

• Full $1,400 amount if you earn under $75,000 (single taxpayer); $112,500 (head of household); $150,000 (married)
• Disqualified at $100,000 (single); $150,000 (head of household); $200,000 (married)
• Phase-out rate increased to preserve this upper limit
• These high earners would not receive partial checks even if they have dependents

The fine print for dependents is important to know

With the previous two stimulus checks approved in March as part of the CARES Act and then in December, it was possible to get a partial payment even if you exceeded the maximum income limit -- if you had dependents. For example, say a married couple with an AGI of $200,000 claims two dependents. With a $1,400 stimulus check that uses the previous formula, that family could still get a $600 check.

That's because the previous formula begins with the largest amount you'd be eligible to receive (for example, $1,400 per single taxpayer or $2,800 for joint filers) and adds $1,400 for each qualifying dependent. Then it reduces the total possible sum according to your AGI and the phase-out rate.

It's a little like starting a test with a perfect 100 point score and subtracting every point you "miss," rather than starting with zero points and adding them all up at the end of the test.

But in this case, the dependents you name can start you at a higher value, say 110 points in our classroom example. So by the time you subtract "points," you may still get more than people who don't have dependents -- even if your AGI is above the maximum cap. The more child dependents you have, the higher your starting value and the higher your ending value, too.

The proposal to target stimulus checks would set a firm cutoff, which means that it would start by evaluating your AGI. If you're over the limit, it wouldn't matter how many dependents you have. You still wouldn't be eligible for a check.

On the other hand, a family with a large number of dependents and an AGI within the boundaries could still potentially receive a large partial payment, as long as they come in below that absolute upper income limit. You can experiment with our stimulus calculator.

Phase-out and reduction rate: What you should know

A sliding scale is involved here. With the second check, for example, if your AGI was less than $75,000 as a single taxpayer (that means no kids), you would receive the entire stimulus check total of $600. If you made more than that, the size of your check would diminish until $87,000, after which point you'd be ineligible.

For the $1,400 stimulus check -- note this could still change -- you might receive the full $1,400 amount if you earn under $75,000 a year (your AGI as a single taxpayer), with diminishing returns up until a $100,000 cutoff. You'd receive a partial check for an AGI between $75,000 and $99,900. Again, you can see the differences in our $1,400 stimulus check calculators.

For heads of households and married couples with dependents, these other household members are an important part of the equation -- up to a point (see above).

For more information, here are the top things to know about stimulus checks. And see how SSDI recipients and checks, older adults and retirees and people who aren't US citizens or Americans who don't live in the US could also qualify, including families with mixed-status citizenship.