By Jon Aldrich
First off, I want to wish everyone a Merry Christmas, Happy Hannukah or whatever you celebrate at this time of year. It has been quite a year, as we all know, and hopefully we all come through it healthy and ready for a new beginning in 2021. Of course, lets leave it to our politicians to make sure we have one more possible crisis before this nightmare of a year ends.
After months of bickering back and forth as is customary in our political system, Republicans and Democrats came to a long overdue $900 billion second Coronavirus stimulus bill (a sequel to the CARES Act) that both the House and Senate overwhelmingly passed and now awaits President Trump’s signature. However, a fly in the ointment appeared late Tuesday night as President Trump Tweeted (Oh No!) that he thinks the stimulus checks to individuals that qualify should be $2,000 per person instead of the $600 that the new bill contains. Thus, there is a possibility he could veto the bill as it stands. If he does, the House and Senate would both need to approve with a two-thirds vote in each chamber. UPDATE: House Republicans have blocked the $2,000 per person subsidy, which makes the bill’s passage, which seemed like a sure thing a couple days ago, a bit cloudier now. It is a virtual certainty that the bill will become law very soon, but President Trump’s last minute request and his veto of the Consolidated Appropriations Act to which the Coronavirus Relief Bill was attached may further delay its passage as members of Congress would have to return from recess to vote to override a possible veto.
Realistically, the only part of the new Coronavirus Stimulus that may change is the amount of the stimulus checks that will go out. Will it be $600 per person or $2,000. So, lets look at the provisions that may have the most effect for the majority of people that read my blogs and try to summarize the massive 5,593-page bill into something we can wrap our arms around.
First off, the good news is that there is hardly anything in here that requires prompt action before the end of 2020. So, you do not need to worry about any new tax planning or other items that need to be accomplished before year-end.
Stimulus Checks of $600 (Recovery Rebates) – Unless Congress amends the bill to increase the stimulus check to $2,000 per person, $600 is the amount you may or may not receive. The credit will be based on your 2019 Adjusted Gross Income (AGI). However, if your 2019 AGI was high enough to phase you out of receiving a stimulus check, but your 2020 AGI is lower and you qualify, you will receive a credit on your 2020 tax return when you file. Here are the AGI thresholds you must be under to qualify. Once you hit the phaseout level, the Recovery Rebate is reduced by $5 for every $100 of AGI you exceed the threshold. If you qualified for the rebate in 2019 but your income in 2020 was higher so that you really do not qualify, you still get to keep the money, there will be no claw backs or adverse tax effects.
- Single = $75,000 totally phased out at $87,000
- Married Filing Joint = $150,000 totally phased out at $174,000
- Head of Household = $112,500 totally phased out at $124,500
Those eligible include the taxpayer and spouse as well as any children that a Child Tax Credit can be claimed. Most will get the check via direct deposit. If you received a payment from the first round of stimulus checks earlier in the year, you will get this one the same way. And barring any shenanigans as mentioned above payments should start going out a week after the bill becomes law, which could be in the next week or so, hopefully.
No Waiver of Future RMD’s – This is not a surprise, as the one-year hiatus on being required to take a Required Minimum Distribution (RMD) from your IRA ends with 2020. If you are required to take an RMD in 2021, you will have to do so.
Payroll Protection Program (PPP) Part 2 – For those businesses significantly affected by the pandemic that did not receive a loan under the first PPP, they can apply for a forgivable loan under Part 2 of the PPP. For those businesses that already received funds from the first PPP (that is fun to type and say) but need additional funds they can still qualify but the requirements are more stringent.
Expenses Paid with Forgiven PPP Loan Fund Are Deductible – This is a biggie for many small businesses whose PPP loan was forgiven, but the expenses used to calculate the loan originally were not going to be deductible according to the IRS. This could have resulted in an artificially inflated tax bill in 2020 because of the loss of these deductible expenses. However, the new bill specifically fixes this problem by allowing for the deductibility of these expenses. This is a big relief for many small businesses. There are a few other enhancements to the PPP program that are beyond the scope of this blog, but you can go here if you want more details.
Extension of Federally Subsidized Unemployment Benefits – Federally subsidized unemployment benefits were set to expire this week. Upon passage of the bill, they will be extended for 11 weeks into the middle of March 2021. Federal benefits are also increased by $300 for these 11 weeks (Remember, under the CARES Act there was a $600 subsidy in unemployment benefits that ran out earlier this year. These benefits are in addition to the state determined unemployment benefits received.
Permanent Reduction of Deductible Medical Expenses to 7.5% of AGI – For those that itemize deductions (which is a lot less than it was before the 2017 tax changes), the hurdle to clear to be able to deduct medical expenses as an itemized deduction falls back to 7.5% permanently. This number has waffled between 10% and 7.5% of AGI, but it is now “permanent” until Congress changes their mind again.
Federal Eviction Program Extended through end of January 2021 – The national moratorium on evictions is extended to the end of January 2021. There is also $25 billion included for assistance to tenants behind on their rent payments because they have been affected by the virus. Landlords can also apply on behalf of their tenants.
CARES Act Above the Line Charitable Deduction – Due to the change in itemized deductions where many taxpayers no longer get an itemized deduction for charitable, an above-the line deduction that anyone could take of $300 was enacted. However, Married filing jointly taxpayers got the same $300 deduction as single or head of household filers. For 2021 only, this deduction doubles to $600 for married filing jointly taxpayers.
Extension of 100% of AGI for Cash Contributions Extended through 2021 – Normally cash contributions to a qualified charitable organization are deductible up to 60% of your AGI. The CARES Act allowed individuals to deduct cash contribution to a charity up to 100% of AGI for 2020 only. The new bill extends this another year through 2021. However, this does not apply to cash contributions to a donor-advised fund or charitable trust.
Meal Expenses 100% Deductible for 2021 & 2022 – Previously was 50%. Done to help restaurants recover. Includes food and beverage. Will this bring back the 3-martini lunch in 2021 and 2022?
Exclusion for Employer Payments of Student Loans Extended Through 2025 – This allows an employer to provide up to $5,250 of annual tax-free education assistance used to pay down an employee’s qualified student loan. The CARES Act only called for this to be effective for 2020, but the new bill extends this benefit through 2025.
Carryforward for Unused Flexible Spending Accounts – Generally these funds needed to be spent within 2 ½ months after year end. The new bill allows you to roll any unused 2020 balances through 2021 and if there are any remaining balances at the end of 2021 allows these to be rolled into 2022. Also allows a participant to modify contribution amounts once during 2021. Normally once these are decided in open enrollment, they are irrevocable. This is just for 2021.
Educator Expenses May Include Supplies Related to COVID-19 – In addition to classroom supplies which have normally been deductible up to $250 a year per educator, supplies related to COVID-19 purchased after March 13, 2020 such as masks, disinfectant, etc. are included in this definition.
No Additional Student Loan Relief – CARES Act suspended collection efforts on defaulted student loans, suspended required loan payments and reset the interest rate to 0% through September 2020, that President Trump extended through January 31, 2021. This has not been extended in the new bill.
There are also billions of dollars earmarked in the bill to help:
- Public and Private Schools $82 billion of which $54 billion is for public schools.
- $20 billion for procuring and distributing the vaccine, and $3 billion to build national stockpile.
- Airlines = $15 billion to cover airline salaries and benefits through March to keep people employed.
- Banks – $12 billion to support small lenders focused on low-income and minority communities.
- Testing – $22 billion to states for testing and tracing.
- Health Care Providers – $9 billion and $4.5 billion for mental health and $1 billion for COVID research.
- Entertainment Venues – $15 billion for independent movie theaters, live entertainment venues and cultural institutions.
- Farms – $13 billion to crop farmers, rural communities, and cattle ranchers.
- Amtrak – $1 billion to avoid further layoffs and furloughs of employees as business has dropped as much as 90%.
- Small businesses – $325 billion which includes $284 billion for PPP Part 2
- US Postal Service – $10 billion that it is not required to repay. However, the USPS will be required to provide more information to Congress and a plan for its long-term solvency within 180 days of stimulus bill passing. It also needs to provide details on how it will use funds it is provided.
And finally to the relief of beer drinkers everywhere, Craft Beverage Tax Relief that was included in the 2017 Tax Reform and was supposed to end at the end of 2020 was made permanent. This provides excise tax relief to the craft beverage industry. Make sure you toast this when you quaff your next IPA!
Whew, feel free to pull up a chair by the fire, have a hot totty and read the full 5,593 pages of text here.
Warm wishes to all and hope you have a safe holiday season.