Much of the focus of the new relief package has been on the $600 payments to individuals, but the 5,000+ page act covers a lot more including, small business loans, funding for the COVID-19 vaccine and unemployment.
Refundable Tax Credit
The $600 individual payments, in addition to the $1,200 payment under the CARES Act in March, are based on 2019 tax filing information. If you were over the income threshold in 2019, but you weren’t over the threshold in 2020, you will still receive the payments as a refundable tax credit on your 2020 1040 tax return. We will see if Congress will increase this to $2,000 per person, as it has been discussed. If you received a payment in 2020, but end up making more than the income threshold, you will not need to return the money.
Charitable Giving Changes
The charitable planning provisions from the CARES Act have been extended to 2021. This includes the above-the-line deduction of $300 for individuals and $600 for those married filing jointly that give cash gifts to charities remains in place. This is for non-itemized filers only, but it provides extra incentive to support charitable organizations during these times.
Also, the CARES Act allowed for cash gifts to most public charities of up to 100% of adjusted gross income in 2020. This is normally limited to 60% of AGI. So, if you have a large tax bill in 2021, you might consider taking advantage of this larger than normal charitable deduction.
Flex Spending Rollover
Another interesting provision is the ability to roll over flexible spending account (FSA) funds from 2020 to 2021 and from 2021 to 2022. Usually, these accounts have a “use it or lose it” requirement that makes account holders to use the funds by the end of the year.
Simplified PPP Loan Forgiveness
The application process for the Paycheck Protection Program’s loan forgiveness just became easier. For loans under $150,000, a business will now need to submit a certification to the lender with just three things: the number of employees you are able to keep due to the loan, how much of the loan will be used to cover payroll costs, and a promise that you’re going to do what you say you will with the money (and that you’ll keep records to prove it). This is designed to help small businesses with the hope that they continue to retain employees through the COVID era.
Next Possible Actions
As the next Administration begins, we will be keeping an eye on retirement planning updates and additional COVID-19 relief as well as another possible aid package.
- Kevin Theissen, HWC Financial
