By Eric Reich
On December 21st Congress passed the latest coronavirus related stimulus package and President Trump signed it late Sunday. Today I thought we would cover both what’s in it, and maybe more importantly, what isn’t.
First, what’s in it for individuals? I’m sure everyone has heard by now that a second stimulus check is on the way, but this time it’s for $600 vs. $1,200 the last time. Also, there is a chance that it will be $2,000 depending on how the Senate votes regarding a proposed change that came in after Congress’s approval. Who is eligible to receive the $600? Like last time, the income limits have remained unchanged. You will receive a check if you are a single tax filer and make under $75,000 per year, a joint filer making under $150,000 per year or a Head of Household making under $122,500 per year. If you have children under age 17, then they will also receive $600 if you are eligible yourself. If you are over the income limits, you may still get a check if you have enough dependents. Say you are married and have 3 kids and would be eligible for a total of $3,000 ($600 x 5), but you made a little over the $150,000 joint filer limit. In this case, the calculation is based on your income. Let’s assume your income is $175,000, and less the $150,000 limit, you would be over by $25,000. To calculate the reduction, you would divide $25,000 by $100 then times that number $5, which would total $1,250. Therefore, your benefit of $3,000 would be reduced by $1,250 and the total amount received would be $1,750. You would still get a benefit; it would just be reduced.
In addition, the package includes a $300 per week extension of the unemployment insurance for up to 11 weeks. This too is half of what the original stimulus was. They did continue the 100% (up to Adjusted Gross Income-AGI) deduction for cash contributions to charities as well as the ability to carry forward any balances in your Flexible Spending Account (FSA) at work up to $550, which can be used in the first 2 ½ months of the new year. Medical expenses can continue to be deducted to the extent that they exceed 7.5% of your AGI. This was a temporary reduction from 10% before the old plan, and it was now made permanent.
It’s important to note that the package did not contain a continuation of the Required Minimum Distribution (RMD) suspension. You will have to take your RMD in 2021. Remember, the new age you have to start taking RMDs is now 72, not age 70 ½ anymore. There is no continuation of student loan deferrals either.
For businesses, there is some welcome news too. If you took a Paycheck Protection Program (PPP) loan, the expenses you paid with that loan, which you originally were not going to be able to deduct, can now be deducted as you normally could. This last-minute decision makes it difficult for CPAs to readjust what they were originally told but is welcome news non the less. There is also a new PPP loan program that businesses, who have had a reduction of 25% or more revenue in any 2020 quarter, can apply for. The allowable uses for the funds has also been expanded to include costs for protecting workers (plexiglass, masks, shields, etc.), damages from looting/riots, and business software expenses such as Zoom or things needed to work remotely. The loans, if under $150,000, now have a simpler forgiveness application too.
The deferral of payroll taxes which was set to expire in 12/31/20 has been extended until 12/31/21. Meals which used to only be deducted at 50% are now 100% deductible in both 2021 and 2022. I’m assuming this was designed to encourage spending at restaurants, which is certainly a welcome addition for many.
Employers can now reimburse employees up to $5,250 per year of education assistance not just in 2020, but as late as 2025. The best part, the payments are not counted as income to the employee and neither employer or employee has to pay unemployment taxes on the funds. Sorry business owners, unfortunately you can’t do it for your own family members.
Lastly for business owners who have a Net Operating Loss (NOL), they can carry that loss back to previous years! See your CPA for more info.
Teachers who buy their own PPE or related supplies now get a $250 above the line deduction too.
While it certainly isn’t perfect, the new stimulus package does have some very helpful provisions in it. I hope this provides some useful insight on some of the key topics. Now if you’ll excuse me, I have to get back to reading, I’m only on page 4,913 of 5,593!
Wishing you a happy and healthy new year!
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
