After months of wrangling, lawmakers in the House and Senate approved an additional $908 billion in pandemic relief on December 21, with President Donald Trump signing the bill into law several days later. The new legislation extends and expands some of the provisions included in the $2.2 trillion CARES Act that was passed last March.
The most well-known provision is a one-time payment of $600 for many Americans, but the $2.3 trillion package (officially titled the Consolidated Appropriations Act, 2021) outlines many more changes that could affect your finances and taxes this year. Here are a few things to know about the new COVID-19 relief package and how it could impact you.
MANY PEOPLE WILL RECEIVE ANOTHER STIMULUS CHECK
The legislation allocates $166 billion for direct economic impact payments. The IRS has already started sending payments out and, just like the stimulus checks sent out last year, the money is not taxable.
Individual taxpayers who had an adjusted gross income (AGI) of less than $75,000 as of their 2019 tax return will receive a one-time payment of $600. Married couples filing jointly making up to $150,000 per year will receive $1,200, as well as a $600 payment for each dependent under age 17.
For individuals with an AGI of $75,000 or more, or married joint filers with an AGI of $150,000 or more, the payment is reduced at a rate of $5 per $100 of additional income. If you earned too much in 2019 to receive a check but your income later dropped enough to qualify for relief, you will be able to claim a payment when you file your 2020 tax return.
UNEMPLOYMENT BENEFITS WILL BE EXTENDED
The $600 federal supplement to state unemployment benefits that was extended by the CARES Act ended in July. But the latest package revives the federal pandemic unemployment benefits at $300 per week through March 14.
In addition, unlike the March stimulus package, the new law provides an additional $100 a week to people who earn money as freelancers or contractors. However, those applying for benefits under this Pandemic Unemployment Assistance program will have to provide documentation that certifies that they lost employment or earnings.
THE SMALL BUSINESS LOAN PROGRAM IS BACK
The legislation earmarks $284 billion to resuscitate the popular Paycheck Protection Program, which provides forgivable loans to qualified businesses through the Small Business Administration (SBA). Another $20 billion of funding will also go toward providing Economic Injury Disaster Loan (EIDL) grants to businesses in low-income communities.
An extension to apply for PPP loans was granted by the Paycheck Protection Program Flexibility Act back in June, but that extension ended on December 31. This third round of small business funding aims to continue the PPP’s goals of helping businesses affected by the pandemic cover payroll and other costs. On top of that, the new funding includes $10 billion specifically to help keep child care centers afloat.
The program is open to first-time applicants as well as business owners who received PPP loans in 2020. While PPP borrowers may still receive a loan for up to 2.5 times their average monthly payroll costs (in the year prior to the loan or during the calendar year), the maximum loan amount has been cut from $10 million to $2 million.
THERE ARE NEW TAX PROVISIONS
- The $300 charitable contribution deduction for non-itemizing taxpayers has been extended to tax year 2021. For married couples filing a joint return, this amount is increased to $600 for 2021.
- The provision that allows you to take an itemized deduction for out-of-pocket health care costs that exceed 7.5 percent of your income is now permanent.
- The provision allowing employer payments of up to $5,250 made before January 1, 2021 for an employee’s student loans (both principal and interest) to be excluded from the employee’s income has been extended through 2025.
- You can roll over unused amounts in health and dependent care flexible spending accounts from 2020 to 2021, and from 2021 to 2022. Employers may now also allow employees to make a 2021 midyear prospective election change in their contribution amounts.
For Small Business Owners:
- In a move meant to help the restaurant industry, the new legislation lets you deduct 100 percent of certain business meal expenses for tax years 2021 and 2022.
- The bill expands an employee-retention tax credit that helps subsidize wages for eligible businesses who kept workers on payroll.
- You will be able to deduct payroll costs and other expenses covered by the Paycheck Protection Program. Additionally, the PPP loans forgiven will not be included in your company’s taxable income. If your new, existing or previous loan is forgiven, you will be able to deduct expenses paid with the proceeds of your loan.
- If you ran your business in a qualified disaster zone (as defined in the bill), you can take a tax credit of 40 percent of wages (up to $6,000 per employee). This applies whether or not the employee performed any services associated with those wages.