So, the second “stimulus” bill has been signed into law. How does that affect you? There are a few things you should be aware of.
Show Me the Money
The thing most people are aware of is the stimulus payment. The amount of the payment is $600 per qualified individual. Qualified individuals are adults and dependent children younger than 17 as of 31 Dec 20. College age dependent children are not qualified individuals and will not receive any payment. There are also income limits. For those who file single the phase out begins at $75,000 of Adjusted Gross Income (AGI), for joint filing the phase out starts at $150,000 of AGI and for head of household the phase out begins at $112,500 of AGI. The payment will be reduced by $5 for each $100 of AGI above the income limit.
The payment will be based on 2019 AGI but is “earned” based on 2020 income. You will reconcile this difference, if there is one, on your 2020 income tax return. The good news is that if your payment is larger than you would receive based on 2020 income, you don’t have to pay it back. Things to watch for are adult children who were dependents in 2019 and thus ineligible for the payment who were not dependents in 2020. If that is the case, they will be eligible for both stimulus checks.
Charitable Deductions. The “Above the Line” (itemizing not required) deduction for cash charitable contributions is extended into 2021. It also increased the amount to $600 for married couples who file jointly. The deduction amount remains $300 for those who file single or Head of Household
Unemployment Benefits. Federally subsidized unemployment benefits were extended by 11 weeks (mid-March 21) and an additional amount of unemployment benefits was added for those 11 weeks. The additional amount from the first round of stimulus ended after 4 months. The new amount is less generous than the original amount and is $300 per week.
Medical Expenses. Medical expenses are only deductible if they exceed an AGI threshold. This one has changed so often I have a hard time keeping up with it. But now it is “permanently” set at 7.5% of AGI.
Tuition Deduction. The law removed the Tuition Deduction starting in 2021. It’s not all bad news though. It also increased the AGI threshold for the Lifetime Learning Credit to align with the limits governing the American Opportunity Credit. The net effect of this will help most taxpayers.
Charitable Deduction Limit. The law extended the ability to deduct (if you itemize) up to 100% of AGI if the contribution is made in cash. I don’t expect too many people will do this. It isn’t the best tax move and you’re not required to do it.
Meal Deductions for Businesses. For 2020 and 2021, business owners can deduct 100% of business meals provided by a restaurant.
Employer Payments of Student Loans. Employers can provide up to $5,250 in tax-free education assistance and through 2025 these funds can be used to make payments on student loans. Limits apply to family members.
Residence Debt Forgiveness. Debt attributable to a primary residence that is forgiven through 2025 is not included in income.
There is More
There are changes and extensions to the Paycheck Protection Program (PPP) Loan program and the Employee Retention Credit that apply to business owners. There are also a handful of other changes to the Tax Code (I think I’ve covered the main ones). If you would like to chat about any of them, give us a call.
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