Last week, Congress passed a $900 billion COVID second stimulus package. The following is a summary of the key items that are likely to apply to you once the bill is signed into law, and some special provisions for immigrants.
Second Stimulus Payments
The payments total $600 per person (adults and dependent children). The full payment is based on your 2019 AGI (Adjusted Gross Income) and phases out as the income goes higher as follows.
- Married filing jointly – Full payment AGI below $150,000.
- Head of household – Full payment AGI below $112,500.
- Single filers – Full payment AGI below $75,000.
As an example, for single filers, the payment starts phasing out after $75,000 and disappears completely at $87,000. For couples, it disappears at $174,000.
You don’t need to do anything to claim the payment. As soon the bill is signed, which at this time is an open question, IRS will send the payment to you either by direct deposit or a check to your mailing address. They use the same method you have used in the past to receive tax refunds.
Immigrants and the Covid-19 Payments
The original CARES Act excluded legal immigrants without green cards (for example work visa holders), but this group has now been included in the payments if they pass the IRS Substantial Presence Test.
A couple that includes an immigrant without a green card will qualify for the payment as well, and this is retroactive to the CARES Act.
Unemployment Benefits Extension
The bill extends the regular unemployment assistance (Federally subsidized) by another 11 weeks (goes to mid-March 2021).
It also provides an extra $300 per week of unemployment insurance relief for the same period.
It also extends the Pandemic Unemployment Assistance (PUA) to March 14th, 2021 and could go as late as April. This is a program that temporarily expands unemployment insurance eligibility to self-employed workers, independent contractors, part-time workers, and freelancers. Normally this group of workers is not eligible for unemployment benefits.
Small Business Provisions
Most of the changes here are either an extension, a modification, or an update to the previously implemented Paycheck Protection Program (PPP), which extended financial help in the form of forgivable loans to small businesses allowing them to keep workers on the payroll.
- The bill includes another round of funding to the tune of $248 billion in forgivable loans. The loan is available to businesses with 300 employees or less (previously it was 500 employees or less).
- The bill sets aside $35 billion dollars to fund the original program. If the business did not receive funding with the original bill, they can apply now and get funded under the original conditions.
- If a business applied for and received money with the original program, they are still eligible to apply for the second loan, but the conditions are a little different this time around.
- The bill also sets aside a certain amount for Economic Injury Disaster loans for businesses in low-income communities, nonprofit organizations, local newspapers, TV and radio broadcasters.
- With the first act there was some confusion on how the forgiven amount will be treated with respect to taxes. This is now cleared up; businesses will be able to deduct expenses paid for with the PPP loans. It also simplifies the loan forgiveness application document to one page for loans less than $150,000.
- It expands the list of expenses that can be paid for with this loan and allows the business owner to choose the covered period (8 weeks or 24 weeks).
Unused dependent care and Healthcare FSA’s (Flexible Spending Accounts) can now be rolled over to 2021 and again to 2022 – Check with your employer on this provision.
Medical expense deductions are now permanently set to 7.5% of AGI. It’s been going back and forth between 7.5% and 10% over the last couple years.
There are a couple other changes that are likely to affect your taxes – happy to go into details if interested in digging into any of these items.
- More time to repay deferred Social Security taxes from paycheck.
- Additional Tax credits.
- Charitable deductions.
- Education- related changes – both employer and individual level.
- FAFSA Simplification – College aid application now has fewer questions.
- Qualified Disaster Distributions – if your principal residence is in a disaster area.
If you would like to discuss the above or any other financial issues, please schedule a free consultation.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jane Mepham and all rights are reserved. Read the full disclaimer here.