Financial Planning

Signed into law on December 27, the newest COVID-19 relief bill, formally known as the Consolidated Appropriations Act, 2021, is by far the largest bill ever enacted at well over 5000 pages. Not only does it provide an array of new relief measures, but it also includes the government omnibus spending bill for fiscal year 2021.

While it will take weeks, if not months, to digest all the details and implications, there are a several major items we want to highlight right away. Below is a list of a number of the key changes that may directly impact our clients.

• One-time direct payments of up to $600 per eligible individual and children 16 years or younger. For example, a family of four with two children may receive up to $2,400. Eligibility rules and income thresholds largely mirror the CARES Act from earlier this year. For every $100 of adjusted gross income (AGI) that exceeds the following thresholds, an additional $5 is phased out or subtracted from the rebate check:
  • Single filer: $75,000
  • Joint filers: $150,000
  • Head of household: $112,500
• The House of Representatives has passed an amendment to increase the amount to $2,000 per individual, although it is currently facing resistance in the Senate.
• The Bill reinstates the Paycheck Protection Program (PPP) for business owners with further revisions and clarifications. Businesses that missed out on the first round of non-taxable, ‘forgivable’ loans through the PPP can apply based on the original rules enacted back in April. If additional capital is needed through a second round of loans, the requirements have become a bit more stringent. The most significant change is that businesses must have experienced at least a 25% reduction in revenue, in any quarter in 2020, compared to its corresponding 2019 quarter, and their total number of employees must not exceed 300, down from 500 employees for the original PPP. Expenses paid with the loan proceeds are also now also tax-deductible.
• Expansion of the Employee Retention Credit for ‘small’ businesses (i.e., less than 500 employees) through the first half of 2021, even for those businesses receiving benefits from the PPP. The tax credit covers 70% of an employee’s quarterly earnings up to $10,000, meaning a qualifying business can claim a tax credit of $7,000 per quarter per employee.
• Federally subsidized unemployment benefits are extended for another 11 weeks, but the weekly benefit was reduced from $600 to $300 for individuals.
• Permanently reduces the medical expenses income tax deduction threshold from 10% to 7.5% of AGI.
• Aligns the Lifetime Learning Credit income phaseout ranges with the American Opportunity Tax Credit (e.g., $80,000-$90,000 for single filers and $160,000-$180,000 for joint filers) and eliminates the above-the-line deduction for tuition and related expenses.
• Extends the CARES Act-created charitable tax benefit allowing for deductions up to 100% of cash contributions to charity, limited to AGI, and above-the-line $300 charitable deduction ($600 for joint filers) for those who do not itemize deductions, through the end of the 2021 tax year.
• Provides relief to FSA (flexible spending arrangement) account holders by allowing them to carry over all unused funds to 2021, as well as all 2021 contributions to 2022. Furthermore, individuals who cease participation in their workplace FSA in 2020 or 2021 are entitled to full reimbursement for their contributions made during 2020 or 2021.
• Starting in 2022, new provisions were added to limit large ‘surprise’ medical bills, as well as to increase transparency for in/out-of-network deductibles and possible out-of-pocket payments.
• Extends the temporary eviction moratorium through January 31, 2021 and provides an additional $25 billion in rental assistance.

After just one week with the bill, these are some of our most significant takeaways. More is certainly to come as we move into 2021.

If you are interested in learning more on our investment insights, take a look at our Investment Outlook 2021 where we discuss the lessons from this past year, and then lay out how we’re thinking about the economic recovery, ultra-low interest rates, and today’s stock market rally.

Please consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.