Takeaways from the Latest Stimulus Package
This past weekend, President Trump signed into law the latest (and long-awaited) stimulus package. There is much buried within the 5,563 pages of the new legislation, thus please note that the following is in no way comprehensive of everything included. But below you will find several items that may impact you and your family.
- Stimulus Checks: Note that the stimulus check amounts could be adjusted upward to $2,000 following pushback from the President and Congress. As of the time of this writing, the following is accurate.
- The current law allows for another round of stimulus checks at $600 per adult and $600 per dependent (under age 17).
- The opportunity to receive a check begins to phase out at $75,000 Adjusted Gross Income (AGI) for individuals and $150,000 for joint filers. (Note: you can find your AGI on line 8b of your tax return.)
- As an example, a family of four (a married couple with two children under age 17) with a combined AGI of $125,000 would receive a stimulus check of $2,400.
- The checks will be based off 2019 tax returns. If your income was too high in 2019, but you would qualify based on your 2020 income, you can request the stimulus as a credit on your 2020 tax return. If the opposite is true and you receive a stimulus check based on your 2019 income, but do not qualify for the check according to your 2020 income, the payment will not be clawed back when you file your taxes.
- Medical Expense Deduction: The threshold for the deduction of medical expenses has been permanently lowered to 7.5% of AGI. For some time, this has oscillated between 7.5% and 10% of AGI. A permanent reduction is a win for taxpayers.
- Payroll Deferral Payback Extended: Earlier this year, President Trump took action to defer payment of payroll taxes for the remainder of 2020 for those who did not opt out. While this increased take-home pay for affected Americans, it will reduce take-home pay in 2021 during the “payback” period. Originally, these taxes were slated to be paid back in the first quarter of 2021. The recently passed legislation allows that payback period to extend throughout the entirety of 2021, which will reduce paychecks to a lesser extent.
- Charitable Contributions:
- “Above-the-Line” Charitable Contribution Extended and Expanded: The CARES Act included the opportunity to take an “above-the-line” charitable deduction of $300 for 2020. This benefit has been extended into 2021 and expanded to $600 for joint filers for 2021 only. “Above-the-line” refers to a deduction that is not tied to itemizing deductions, meaning it can be used by those who claim the standard deduction which includes most Americans. While this does not substantially move the tax needle for many, it does allow taxpayers who use the standard deduction to take advantage of a small charitable deduction.
- Cash Contributions Up to 100% of AGI Extended: Typically, deductible cash charitable contributions are limited to 60% of AGI. The CARES expanded this to 100% for 2020. The new legislation extends that option into 2021 as well. (Note: This does not include contributions to a donor-advised fund.)
- Other Included Items: As the legislation is over 5,500 pages, there is much included that is not highlighted here. But a few additional areas of note are outlined below:
- Extended unemployment benefits
- Additional funding for COVID-19 vaccinations and testing, education and airlines
- Paycheck Protection Program (PPP)
- Another round of the Paycheck Protection Program (PPP2) is included for small businesses that have exhausted their funds from the first round. The legislation also offers the opportunity to apply for the first round of PPP if small businesses did not apply originally but qualify.
- For businesses who took PPP funds in round one, this legislation made clear that expenses paid with PPP funds are deductible.
- A simplified application for the Free Application for Federal Student Aid (FAFSA) to begin July of 2023.
- Notably Excluded Items: There were a number of items that were discussed but not included in the final legislation.
- Funding for state and local governments
- Relief from required minimum distributions (RMDs) for 2021
- Extended relief for those with student loans
