By Brighton Samet, Moneta Tax Planning Consultant
The IRS and the Treasury Department began issuing a second round of Economic Impact Payments, often referred to as stimulus payments. The direct deposit payments may take several days to post to individual accounts. Paper checks also began going out and will continue to be sent through January. Some people will be mailed debit cards in January, and the IRS urges people to carefully check their mail.
The “Get My Payment” tool is available to check on the status of your payment and to find out how you will be receiving the payment. It has been updated for the second round of payments.
On Sunday, December 27, President Trump signed the Consolidated Appropriations Act, 2021 (CAA, 2021) into law. The bill combines a $1.4 trillion annual spending bill to avert a government shutdown and $900 billion in pandemic-related support. The $2.3 trillion total exceeds that of the $2.2 trillion CARES Act passed in March.
The CAA, 2021 is the result of months of negotiations in Congress and President Trump’s six-day delay in signing it. It was overwhelmingly passed in both houses of Congress. There was pressure to get the bill signed to avoid a government shutdown and the lapse of unemployment benefits, as well as getting the next round of stimulus payments to individuals.
Highlights of the 5,500-page bill include many tax-related and pandemic-related provisions:
New Stimulus Payments
The Consolidated Appropriations Act includes “additional 2020 recovery rebates.” This program is an additional $600 per taxpayer ($1,200 for married filing jointly), in addition to $600 per qualifying child under age 17. Just like the first round, the payments are subject to phase-outs beginning at $75,000 of modified adjusted gross income (AGI) ($112,500 for heads of household and $150,000 for married filing jointly). The rebates are reduced $5 for every $100 over the threshold AGI amount.
Like the first round of payments, these rebates are also an advance on a credit that will be calculated on your 2020 tax return. The actual credit amount will be determined when you file your 2020 return.
- If you do not qualify for a payment based on your 2019 tax return, but become eligible in 2020 as a result of the COVID-19 coronavirus outbreak, you will instead receive a tax credit for the appropriate amount on your 2020 tax return.
- Conversely, if you qualify for a payment based on your 2019 tax return but earn income in excess of the phaseout thresholds in 2020, you will not be required to pay it back.
Deductibility of PPP-funded Expenses and Second Round of Forgivable PPP Loans
Expenses paid with Paycheck Protection Program (PPP) funds are now tax deductible. The original CARES Act made PPP forgiven loans not taxable and therefore expenses paid for with forgiven loans were not deductible. The CAA, 2021 law corrects the tax treatment to match the original intent of Congress, so that expenses paid with forgiven PPP funds are tax deductible for all borrowers.
Other changes to the PPP include reopening the program to new borrowers, added expense categories eligible for forgiveness, a second round of forgivable loans for small employers with a 25% drop in gross receipts and streamlined forgiveness for borrowers with loans under $150,000.
Extended Unemployment Benefits
The original expanded unemployment programs were set to expire December 31, 2020. The CAA, 2021 bill provides an additional $300 per week through March 14, 2021. The Pandemic Unemployment Assistance (PUA), providing unemployment benefits to individuals such as the self-employed not normally eligible for unemployment, is extended 11 weeks as well. Without this extended coverage, an estimated 14 million people would have lost all unemployment benefits according to The Wall Street Journal’s article “What to Know About Unemployment Benefits in Covid-19 Aid Package” from December 29, 2020.
Full Deduction for Business Meals from Restaurants
To support the restaurant industry, business meals provided by a restaurant will be 100% deductible to that business for 2021 and 2022. Normally business meals are limited to a 50% deduction.
Charitable Deductions Expanded for 2021
Charitable deductions of up to $300 for qualifying cash contributions will be deductible for those that take the standard deduction in 2020 and 2021. The maximum amount is increased to $600 for married couples filing jointly (for 2021 only).
For taxpayers who do itemize deductions, the legislation extended an increase of the allowable limit of qualifying cash charitable contribution deductions through 2021.
The limitation on qualifying cash charitable deductions (generally limited to 60% of AGI) will be suspended for 2020 and 2021.
Permanent Reduction in Medical Expense Deduction Floor
In 2020 and recent years, individuals could claim an itemized deduction for unreimbursed medical expenses that exceeded 7.5% of AGI; however, each year that threshold had to be renewed to prevent the threshold rising to 10%. The CAA, 2021 makes the 7.5% threshold permanent.
We will continue to analyze this bill so we can stay ahead of its potential impacts on your portfolio. If you have questions in the meantime, please don’t hesitate to reach out to your Moneta advisor team.
© 2021 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise.