There was some good news coming out of the end of 2020 – a second pandemic relief package is on the way, including stimulus checks for those who most need it as well as some other notable changes. In fact, many people have already received their stimulus checks of up to $600 per filer or dependent under the age of 17 per household.
Pandemic Relief Highlights
For single filers, the threshold to receive a second stimulus check is adjusted gross income (AGI) below $75,000 (based on your 2019 tax return); $150,000 for joint; and, $112,500 for head of household. There is a reduction of $5 for every $100 of AGI over this threshold.
In addition, people receiving unemployment will receive an additional $300 per week (a reduction from the prior $600). The timeframe for receiving benefits has been extended until mid-March.
Those who had limited income in 2020 will be able to use their 2019 income to qualify for the earned income tax credit and the child tax credit when filing their 2020 tax returns.
Interestingly, additional waivers of required minimum distributions were not included in the second relief package, nor were coronavirus-related distributions from retirement accounts.
Additional Items of Interest
Also of note, the medical expense deduction hurdle of 7.5% is here to stay unless it is undone in some future legislation.
A more favorable item is that the dreaded FAFSA form has been dramatically reduced to make the process simpler. However, it unfortunately does not go into effect until 2023, so some of us will still be filing the long form. Also, the above-the-line deduction for tuition and education-related expenses is gone; however, the phaseouts for the American Opportunity Tax Credit has been increased to $80,000 for single filers and $160,000 for joint filers.
Additionally, unused flexible spending and dependent care account dollars can be used in 2021 (and 2021 funds can be used in 2022), provided your employer allows for this change.
Finally, if you are charitably inclined, the above-the-line charitable deduction of $300 is extended and has been increased to $600 for joint filers. Moreover, the charitable deduction limit has been raised to 100% of AGI (from 60%.)
Small Business Relief
There is also some good news for small businesses in that the paycheck protection program (PPP) has been extended. The original program received additional funding, and there’s now a second-level program for those who have previously received a loan but still need assistance. A business must demonstrate a drop in revenue of 25% in any quarter in 2020 (compared to 2019) to qualify for this second-level loan program so that funds may go to those with the direst circumstances. So, if your favorite small business is hurting, make sure they are aware of the additional aid potentially available to them through this second round of relief.
Also, for those businesses that did qualify for the original PPP, there’s good news. The expenses covered by the PPP are now deductible, providing more relief for struggling small businesses. Furthermore, businesses that received loans of less than $150,000 need only file a one-page certification to qualify for forgiveness.
Finally, businesses can now pay $5,250 tax-free to help employees pay off student loan debt, although there are some limitations on owners. This could be a nice way to attract or retain employees as well as alleviate their financial stress.
I hope you found this information helpful and that you have a healthy 2021. If you have any questions about the second pandemic relief package or its impact as it relates to your personal situation, please do not hesitate to get in touch. We are here to help.