COVID Financial Relief Package Signed Into Law

December 28th, 2020 by Jim Allen

After months of negotiation, and some last-minute drama, President Trump finally signed the “Appropriations Act of 2021” which will give at least some financial relief to individuals and businesses. This “stimulus” bill provides direct cash payments to most individuals, extends federal unemployment insurance, and allows some income tax deductions for businesses and individuals.  It also provides funding for additional “PPP” loans for struggling businesses.

Here are the highlights of the legislation:

Recovery Rebate Credit

In the initial stimulus act (The CARES Act), individuals who had income levels below $75,000 single or $150,000 joint all received $1,200 “recovery rebate” checks. Dependents under age 17 also received $1,200 payments. This tax bill provides a second round of recovery rebate checks, but at a reduced amount of $600 per person. For example, a married couple with 2 minor children will receive $2,400 in recovery rebate checks.

The income phaseout levels remain the same as before and it is based on your 2019 income tax return. Like the previous checks, these rebates are technically an advance against a tax credit on your 2020 tax return. There is currently discussion about increasing the check amount to $2,000 and we shall see what happens in Congress.

Extended Supplemental Unemployment

The just expired $300 per week supplemental unemployment benefit has been extended for another 11 weeks.

Another Round of Paycheck Protection (PPP) Loans

The CARES act provided forgivable loans to small businesses to help keep employees on the payroll and pay expenses during the initial shutdown. These loans were extremely popular, and many businesses were left out as the allocated funds were used up very quickly. The new tax bill creates another round of funding for both first time and additional PPP loans to businesses. They have simplified the loan forgiveness process for smaller employers and also made clear that the business can deduct the expenses even if the loans are forgiven.

Misc. Tax Deductions and Credits

The Appropriations Act contains several miscellaneous provisions related to individual and business tax deductions.

For instance:

  • The threshold for deducting medical expenses will permanently remain at 7.5% of adjusted gross income rather than increasing to 10% as previously planned.
  • Another is the ability to deduct $300 of charitable contributions without itemizing,
  • Extending this deduction to 2021 and
  • Increasing the amount to $600 for married couples.

On the business side, a major change is that 100% (increased from 50%) of business meals will be deductible for 2021 and 2022. There is a requirement that the meals must be provided by a restaurant (either dine in or take out). This should help stimulate business for struggling restaurants.

What’s Not in The Bill

Some of the items that were in the CARES Act were not extended. For instance, the suspension of required minimum distributions from retirement plans ends 12/31/20 and they will be required again in 2021. In addition, the favorable tax treatment of COVID related retirement distributions ends on 12/31/20.

This tax bill is over 5,000 pages long, so we are simply providing a very brief overview of the major provisions that may impact your financial plan. If you have questions or want to discuss your situation further, please contact us.

A special thank you to Anchor Bay associate Blake Pinyan for his research on the Appropriations Act and assistance with this article.

Jim Allen, CFP, ChFC, CDFA is the Director of Financial Planning and a Principal at Anchor Bay Capital. In addition to his 30 years of financial planning experience and his professional credentials, he holds a Master’s Degree in Financial Planning and is a former instructor in the CFP program at the University of California Irvine. He is also the co-author of the book “The Tools & Techniques of Charitable Planning.” Jim can be reached at [email protected]