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End of Year Stimulus Package
December 2020

Dec 30, 2020 | Business Owners | Cash Flow | Families

The latest Coronavirus recovery measures were signed into law on December 27th, as part of the behemoth, 5,593-page Consolidated Appropriations Act of 2021. The package extends aid to millions of struggling households through stimulus checks, enhanced federal unemployment benefits, and money for small businesses, schools and childcare, as well as for vaccine distribution. This support comes at an important juncture for many of those hit hardest economically by the pandemic.

Here is an overview of what we believe is likely to be most relevant to Pathway clients:

Stimulus checks:

You will receive a stimulus payment of $600 per taxpayer, plus $600 per qualifying child, if your 2019 income is below the threshold of $75,000 for single filers, $112,500 head of household filers, and $150,000 for joint filers. Above those thresholds, your payments will be decreased by $50 for every $1,000 of earnings. For example:

Jonathan is single with no qualifying children and has an adjusted gross income (AGI) of $80,000.
• As a single taxpayer his base payment would be $600.
• Because his AGI is $5,000 above the threshold his payment would decrease by $250 ($50×5).
• His stimulus payment will be $350.

If your 2019 income was too high, but your 2020 income is below the thresholds, you will receive the stimulus as a tax credit when you file 2020 taxes. These payments are scheduled to begin the last week of December for direct deposits and January 15th for paper checks.

Charitable Deductions:

A few provisions relate to charitable actions:

For taxpayers who take the standard deduction, charitable donations to a 501(c)(3) charity can still be deducted from income, up to $300 in 2020, and $300 single/$600 joint in 2021.

• You can use cash charitable contributions direct to charities (not donor advised funds or 509(a)(3)supporting charities) to offset 100% of your Adjusted Gross Income in 2020 and 2021.

Education-related changes:

• Employers can now help employees pay for previously incurred student debt as part of their education benefits – a planning opportunity for small business owners.

• The FAFSA will be simplified by 2023, with fewer questions and a name change from “Expected Family Contribution” to “Student Aid Index.”

• While the above-the-line deduction for qualified tuition & related expenses has been eliminated starting in 2021, income limits for the American Opportunity Tax Credit/Lifetime Learning Credit have been increased.

Business Provisions:

• A new round of Payroll Protection Program (PPP) funding is included. Small businesses who had a decrease in revenue of 25% in any quarter in 2020 can qualify for a second PPP loan.

• The new bill clarified that the expenses paid with PPP loans are tax deductible.

• The Employee Retention Tax Credit (ERTC) is greatly expanded and now available for businesses who also received a PPP, with the caveat that the expenses used for claiming the ERTC cannot have been covered by a forgivable PPP loan. Businesses are eligible if their year-over-year gross receipts decreased by 20% or more.

• Business meals are deductible at 100% in 2021 (up for 50%) – likely in a move to support a hard-hit sector.

Medical Provisions:

• Deductibility of medical expenses made permanent for expenses above 7.5% of AGI for all itemizing taxpayers.

• Unspent flexible spending account dollars may be rolled over into 2021 and 2022 at the discretion of the employer.

Please reach out to us if you have any questions or would like to discuss your specific situation.

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