What You Need To Know About Stimulus 2.0

This article was published by Jeffrey Levine, the Director of Advanced Planning at Buckingham, one of Modernist’s strategic investment partners.

After nearly six months of back-and-forth negotiations, and in response to the economic hardship that many Americans face from the ongoing COVID-19 pandemic, Congress proposed a new, $900 billion relief package.

Many elements—like stimulus payments and PPP loans—will sound familiar from earlier this year.

However, debate surrounding certain provisions in the economic stimulus and relief package has intensified since it left Congress, and as of this posting, President Trump has yet to sign the bill.

(This bill was signed into law on December 27th.)

Luckily, should it become law, few measures in the whopping 5,593-page bill require prompt action before the end of 2020. Nevertheless, extensive media coverage has prompted questions regarding how it will affect you and your family. To help offer some clarity, here’s a high-level breakdown of six important provisions in the bill you need to know about.

Stimulus checks

The latest round of stimulus checks largely mirrors the rules and guidelines that were used for the first round authorized by the CARES Act, with a few notable changes. The most significant change for most people is that the latest round authorizes a base credit of $600 per eligible individual.

Eligible individuals include the taxpayer (or, in the case of a joint return, the taxpayers) filing the return as well as any children for whom a Child Tax Credit may be claimed (they must be younger than age 17). As was the case under the CARES Act, your base rebate under the latest stimulus bill begins to be phased out as your income exceeds an applicable threshold.

As was the case under the CARES Act for the initial Recovery Rebate, your base Additional Recovery Rebate under the latest stimulus bill begins to be phased out as your income exceeds an applicable threshold. More specifically, for every $100 of Adjusted Gross Income (AGI) you exceed your applicable threshold, $5 of Additional Recovery Rebate will be phased out.

Thus, the phaseout range varies from taxpayer to taxpayer, depending upon the size of your base Additional Recovery Rebate (i.e., the more eligible individuals, the larger the dollar amount to be phased out at $5 per $100 of AGI, and the more income it will take to fully phase out the rebate check).

The AGI thresholds (unchanged from the CARES Act) where a taxpayer’s base Additional Recovery Rebate begins to be phased out are:

• Single Filer: $75,000

• Joint Filer: $150,000

• Head of Household Filer: $112,500

Finally, it’s worth noting that while the Additional Recovery Rebate is a 2020 refundable credit, it will be paid as soon as possible based on the AGI report on your 2019 tax return.

Return of the Paycheck Protection Program

One of the centerpieces of the latest COVID-19 relief package is the introduction of a potential second loan under the Paycheck Protection Program (PPP).

It reopens the original PPP, makes meaningful revisions to the rules (applicable to both the original and the new versions), and provides important clarifications. All of this additional relief may come as welcome news if you’re a small business owner whose revenue continues to suffer as a result of the COVID-19 pandemic.

For those businesses who have yet to receive a loan under the PPP, the ability to apply for round one financing will be reopened. The qualifications and the rules for that program remain largely the same.

By contrast, those businesses who have already received a loan under the original PPP but need additional capital may be able to receive a second loan under the new version. The program’s latest iteration, however, has more stringent qualification requirements than the original PPP.

Changes to the PPP under the new stimulus and relief package include:

• Additional authorized expenses

• Flexibility in selecting covered period

• Simplified forgiveness application for loans up to $150,000

• Borrowers who returned funds can reapply

• Maximum allowable second-draw loan amount under the program’s new version is capped at $2 million (compared to $10 million under the original PPP)

Expansion and extension of the Employee Retention Credit

The Employee Retention Credit first introduced by the CARES Act is a refundable payroll tax credit available to certain businesses whose quarterly revenue has declined as compared to an appropriate reference quarter, and is calculated, in part, based on wages paid to employees. The new legislation extends eligibility for affected employers for the first half of 2021. What’s more, not only does it dramatically increase the maximum benefit, but it also makes it easier to qualify to receive that benefit.

Extension of larger unemployment benefits

When the CARES Act was passed in March, it created a host of out-of-the-ordinary unemployment benefits. Many of those benefits have been extended, or reinstated, under the new coronavirus relief package, including 11 weeks of extended unemployment compensation (including for those individuals who don’t usually qualify), and an additional $300 per week for 11 weeks on top of regular state-determined unemployment compensation benefits.

Modified and extended tax incentives around charitable contributions

When the CARES Act was introduced in March 2020, it included new tax benefits for those making charitable contributions, including an above-the-line deduction for cash contributions for those who do not itemize deductions on their tax return. The new legislation extends this benefit to 2021 and in addition, for 2021 only, it removes the marriage penalty, by allowing joint filers to claim a deduction of up to $600.

Personal Income Tax Changes and Extensions

Various parts of the bill make changes to the rules governing your personal income taxes. Some of the more substantive changes include:

• Carry-forward relief for Flexible Spending Account funds unused at year-end

• Exclusion for employer payments of student loans extended through 2025

• Permanent reduction in the AGI hurdle for medical expense deductions

What’s not included in the Consolidated Appropriations Act of 2021?

Understanding what’s not in the stimulus and relief package – that is, what didn’t carry forward – can also be helpful for planning purposes. To this end, the following are issues/items that it did not address.

• No waiver of future Required Minimum Distributions (RMDs)

• No additional relief for unwanted 2020 RMDs

• No further student loan relief

The various adjustments, extensions and new rules that come with Congress’s latest economic relief and stimulus package are significant and complicated.  As mentioned above, this bill has not yet been signed into law, and therefore any of the terms are still subject to change. We’re here to answer any questions you might have about what this legislation may mean for you, and your financial plan, over the next year and beyond.