As you might be aware, on December 21, 2020, the Consolidated Appropriations Act was passed by both houses of Congress. After major delays due to printing issues, the final bill finished at 5,500+ pages. Here is the full PDF. This length drew criticism in Congress since voting occurred without having time to fully read it. We wanted to share a few of those updates worth mentioning. These highlights are focused more on personal financial planning to help you serve your clients.
We based these highlights on preliminary reads of the bill and future guidance will be forthcoming. President Trump will need to sign this bill, however, he also alluded he may veto the bill. According to Mitch McConnell, the Senate was prepared to convene on December 29 if needed to overturn a veto by Trump.
Before going into some highlights that made the cut, we wanted to note that there are two items that did not. While largely expected, there are no mentions of a COVID-19 hold-harmless for employers. In addition, there is no extension of the deferment for student loans, although an extension under a Biden administration seems likely.
Stimulus Checks and Unemployment
- The maximum per person is $600 (which includes children)
- Under the CARES Act passed in March 2020, adults received $1,200 for themselves, and $500 for children as a base amount. This time, it is $600 for each person in the household.
- The expected first payments are scheduled to go out before the end of the year
- The thresholds are based on 2019 Adjusted Gross Income (AGI)
- Married-Filing-Jointly (MFJ) threshold begins at $150,000
- Single threshold begins at $75,000
- The stimulus checks are reduced by $5 for every $100 a taxpayer is over threshold
- Planning Note: As a result, a single tax filer will see no payments if they have an AGI of $87,000 or higher. For a married couple filing jointly with no children, their payment would phase out completely with an AGI of $174,000.
- Starting December 26,2020, federal unemployment benefits will have an additional $300/week in addition to any state benefit.
- These federal extensions end in full after April 5, 2021.
- Extension into 2021 for the $300 above-the-line charitable deduction
- For 2021, the deduction is $300 for single filer, or $600 for MFJ.
- For 2020, there was not any additional amount given for MFJ filers, only $300 per tax return.
- Extension to give up to 100% of your AGI in qualified charitable contributions was extended through 2021
- Planning Note: In 2020, these were limited to cash donations and this bill will extend this benefit. The 30% of AGI deductibility limit still applies for non-cash donations.
Education and Student Loans
- FAFSA was simplified – the form is currently 108 questions, and the expectation is a reduction to around 35 questions.
- The term “Expected Family Contribution” is now considered the “Student Aid Index”, and the calculation is expected to be easier.
- Employers can give employees $5,250 per year for student loan payments, and this will be non-taxable income to the employees and no FICA for employers
- Excludes owners of Sole Proprietors, S-Corps, and Partnerships, if a significant portion of the business is owned
- Planning Note: We will be looking forward to a possible Secure Act 2.0 (Securing a Strong Retirement Act of 2020 – Neal/Brady) that may allow employers to match based on student loan payments as elective deferrals for purposes of employer matching.
Deferred 2020 Payroll Tax
- Employers now have the ability to spread out these taxes until December 21, 2021
- Originally the CARES Act only deferred these taxes until January 21
- 100% of business meals will be deductible for 2021/2022
- Under current law, firms may deduct the 50 percent of the cost of business-related meals.
- Hurdle for deductibility of health expenses reduced from 10.0% to 7.5%
- Planning Note: over the past years, this has gone back and forth between 7.5% to 10.0%. The 7.5% floor is now permanent.
- If an employer elects, employees can have the ability to carry 2020 FSAs unused amounts over to 2021, and 2021 unused amounts to 2022.
If you or your clients would like to know more about these opportunities, please reach out to our Advanced Planning Team at firstname.lastname@example.org.
Investment advice offered through CX Institutional, a registered investment advisor.