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Congress worked down to the wire last week, ultimately passing a 5,593-page, $900 billion coronavirus relief package on Monday, December 28th. The headline is that they are sending out stimulus payments with a maximum of $600 for every qualifying adult and child. This is a departure from the CARES Act payments, which had a maximum payment of $1,200 for adults and $500 for dependents.
Although stimulus checks draw most of the attention, there is much more to the bill. After all, 328 million people in the US receiving $600 comes out to just under $200 billion – what’s the other $700 billion for?
What’s in the new stimulus bill?
In addition to personal stimulus payments, the legislation continues several popular programs that were set to expire. Federal unemployment insurance is increased by $300 per week for the next eleven weeks. Nearly $300 billion was added to the Paycheck Protection Program to provide forgivable loans to small businesses. The legislation specified that these loans should be directed to assist businesses hardest hit by the effects of the lockdown. The federal eviction moratorium was extended another month, this time to the end of January, and $25 billion was allocated to help vulnerable renters pay rent and utilities.
Additionally, the bill provides support for COVID-19 vaccine development and distribution, along with testing and contact tracing.
When will I get my stimulus payment, and how much will I receive?
The IRS is using the same basic formula to determine stimulus payment totals as it did with the CARES Act, with a few adjustments. The credit “base” for the second round will be $600 rather than $1,200 for individuals (double the difference for married families), and $600 for each dependent, while the CARES Act only offered $500 per dependent. Single tax filers with an Adjusted Gross Income (AGI) up to $75,000 are eligible for the full amount, as are married filing jointly households with an AGI up to $150,000. The formula is applied such that a household may receive their full credit ($600 for an individual, $1,200 for a married family) plus $600 for each qualifying dependent up to their respective AGI threshold, then the total is reduced $5 for every $100 dollars of income over the threshold until the credit goes to zero. The website CNET has a free online calculator that will allow you to calculate your estimated stimulus payment
The payments started going out December 30th, and they’ll be distributed until January 15th. Due to a self-imposed deadline in the legislation, the IRS isn’t permitted to issue stimulus payments past the 15th. If you don’t receive your stimulus by then, you’ll be able to claim it as a tax credit when you file your 2020 tax return through the IRS’s Recovery Rebate Credit. This will most likely only be an issue for people who receive their payment via the mail – if you have a direct deposit setup with the IRS, it’s likely you’ll receive the cash before the deadline. To track the status of your payment, you can go online to the IRS’s Get My Payment portal.
Along with the myriad financial appropriations, several changes were made that will create tax planning opportunities to improve your financial situation.
- The lifting of the cap on charitable giving deductions from 60% to 100% of AGI will be extended through the end of 2021, along with the above-the-line charitable contribution of $300 for single filers ($600 for marrying filing jointly).
- FSA account balances from 2020 can be carried forward into 2021 and balances from 2021 can be carried over to 2022.
- Unreimbursed medical expenses that exceed 7.5% of AGI will be deductible (if you itemize), rather than reverting back to a 10% AGI hurdle.
- There is the ability to deduct meals and entertainment expenses at restaurants for 100% of the expenses, as well as the elimination of the Tuition and Related Expenses deduction for education in favor of an expanded and more generous Lifetime Learning Credit.
- The list of eligible expenses for the $250 educator expense deduction has been expanded to include supplies that prevent the spread of COVID-19, such as Personal Protective Equipment.
What’s not in the stimulus bill?
With all that’s been included in the bill, it’s surprising to consider that a number of contested items didn’t make the cut. State and local aid to the tune of $160 billion was not included, due to liability guards that have not been voted on. Despite a persistent effort by Republicans throughout the summer and fall, a limiting of COVID-19 liability for lawsuits against businesses from people claiming these institutions caused them to acquire the coronavirus was not in the final language. Despite interest, further relief on Required Minimum Distributions and student loan deferrals were not passed into law with this bill.
Third round of stimulus payments?
No sooner had the ink dried on the President’s signature on this law than discussions of another stimulus bill began in earnest. President-Elect Biden actually started talking it up before then, saying this current stimulus was a “down payment in addressing the crisis,” and that he’s intent to distribute a third round of stimulus payments once he takes office. Between the unaddressed issues of the current legislation and the ongoing economic hardship resulting from COVID-19, it seems likely that there will be another stimulus bill before too long; however, the exact size and scope still remain to be seen.
| Mike Hengehold, CPA/PFS MST RICP®
Mike is the Founder and President of HCM Wealth Advisors. Over the last 30 years, he’s provided financial planning guidance to a myriad of families to help them realize their financial dreams. Mike is an avid homebrewer and animal lover, and when he’s not at work you can often find him on the golf course working on his short game.