What Does the New Stimulus Bill Mean for Advisors and Clients?
What to expect.
The bipartisan $900 billion COVID-19 relief bill passed Monday night. While lots of information is out there on the specific provisions, what do advisors and their clients need to know?
Stimulus checks of $600 per person ($1,200 for married couples and $600 per child) will be paid to those within certain income limits. Payments will also be allowed for noncitizen spouses of citizens.
What you need to know: Checks will likely come in January. Expect your checks to be reduced down to zero for singles with income between $75,000 and $99,000 and married couples with income between $150,000 and $198,000.
Expanded Unemployment Benefits
Unemployment benefits are extended to employees, independent contractors, and gig workers for an additional 11 weeks with an extra $300 per week. For those with multiple jobs, the bill adds an extra $100 per week.
What you need to know: There will likely be a lapse in unemployment benefits between the current expiration date of Dec. 26, 2020, and commencement of new benefits. Expect lots of issues with red tape.
An additional $284 billion is being made available for Payroll Protection Program loans. Businesses can apply for a new PPP loan even if they already benefited from the previous program. Some funds are set aside specifically for very small businesses, financial institutions catering to minorities, newspapers, broadcasters, and nonprofits, while grant money will be available to live entertainment venues, movie theaters, and cultural institutions. The new bill allows for easier loan forgiveness for businesses with PPP loans of $150,000 or less.
What you need to know: A second PPP loan will be allowed for businesses with no more than 300 employees, that have experienced a 30% revenue decline in any 2020 quarter compared with the same quarter in 2019.
Nontaxable PPP Loan Forgiveness
When originally enacted, forgiven PPP loan proceeds were supposed to be nontaxable. However, the Treasury Secretary and the IRS held that, although loan proceeds were not income, expenses paid with loan funds would not be deductible. In keeping with congressional intent, the new bill clarifies that expenses paid with forgiven PPP funds are deductible.
What you need to know: This is a big deal! For those looking at year-end tax planning, this is a nice bonus. You can deduct expenses paid with PPP loan funds even if the loan is forgiven.
$25 billion is set aside to assist renters facing eviction. State and local agencies will administer this aid.
What you need to know: The current eviction moratorium was set to expire Jan. 31, 2021. The new bill will extend that date, although it is not clear by how long.
$82 billion is earmarked for education funding, including direct money to schools and colleges as well as increased PELL Grants.
The bill includes significant funding for the purchase and distribution of COVID-19 vaccines ($28 billion). Funds are also provided to states for testing ($20 billion) and to healthcare providers ($20 billion).
Although the bill does not expand eligibility for food stamps, it does include a 15% bump for Supplemental Nutrition Assistance Program benefits.
Significant funds will be provided to help those in struggling transportation industries. $45 billion will be split between airlines, transit systems, highways, busses, airports, and Amtrak.
Earned Income Credit
Low-income taxpayers will be allowed to use 2019 income, rather than 2020, if it results in a larger earned income credit for tax-year 2020.
What you need to know: If you’ve qualified for the earned income credit in the past, be sure to check on using 2019 numbers for 2020. It could make a big difference!
Other Business Benefits
The bill allows increased deductibility for business meals for two years. Businesses will also benefit from extended and expanded employee retention tax credit and payroll tax credit.
What you need to know: For 2020 (and potentially 2021), businesses can deduct 100% of business-related meals rather than the current 50%.
Expect to hear more about the provisions in the coming days and weeks. Some specifics have not yet been determined. But overall, this should be good news for many people as well as the economy.