While the law is very broad and addresses a number of areas and industries, we believe the following are important to highlight for individuals and their families.
Additional 2020 Recovery Rebate Checks: In addition to the stimulus checks that were provided as part the CARES Act in the spring of 2020, U.S. residents with adjusted gross income up to $75,000 ($150,000 joint filers and $112,500 for heads of household) are eligible for a $600 ($1,200 for joint filers) payment, as well as an additional $600 per child (younger than 17).
There are no minimum income requirements for the payment. Individuals with little or no income are generally eligible provided they are not a dependent of another taxpayer and have a work-eligible Social Security number.
This amount is reduced by $5 for every $100 over the income limit above, so it would be fully phased out for those with incomes over $87,000 (single) and $174,000 (joint filers) with no children.
It is important to think about what stimulus checks can mean for you and your goals. We've outlined our recommendations here.
Unemployment & Financial Assistance
Increased Benefit Amount: The new legislation provides an additional $300/week payment to each recipient of unemployment insurance, for weeks of unemployment starting after Dec. 26, 2020, and ending on or before March 14, 2021.
Retirement Accounts - Back to "Normal"
While the CARES Act included provisions such as removing the early withdrawal penalty from retirement accounts for COVID-19-related distributions, as well as a waiver of 2020 required minimum distributions (RMDs), there were no such provisions in this round of legislation. RMDs will resume in 2021, and the early withdrawal penalty will resume for most distributions taken before age 59½.
Enhanced Tax Benefits for Charitable Gifts
$300 Deduction of Cash Contributions
The new legislation extended the above-the-line deduction for cash contributions to charities for those who don't itemize deductions. For 2021, the maximum deduction is $300 for single filers and $600 for joint filers.
Changes to Limits on Charitable Contributions: The new legislation also temporarily extended the increased limits that were permitted in 2020 by the CARES Act.
- Individuals: For those who itemize their deductions, the 60% of adjusted gross income limit for cash gifts is suspended for 2021.
- Corporations: The 10% limit on charitable contributions is increased to 25% of taxable income for 2021.
Homeowners, Renters and Student Loan Holders
Whether you are a homeowner or a renter, the CARES Act may provide some relief for your situation. Through March 31, 2021, the Centers for Disease Control and Prevention (CDC) has prohibited landlords from evicting tenants who can no longer afford to pay rent, subject to certain conditions. The federal government has also automatically deferred federally held student loan payments through Sept. 30, 2021.
- Loan Payment Suspension
Suspends payments automatically for federally held student loans through Sept. 30, 2021, with no interest accruing or penalties during the period of suspension.
- Additional Provisions
Contains a variety of other emergency-relief provisions related to education, and specifically the impact of many students being sent home mid-semester. For example, it allows universities to make payments to students who were unable to complete work-study programs.
Continuation of the Paycheck Protection Program: The new law provides additional funding to the Small Business Administration (SBA) to enable businesses to receive a first or second Paycheck Protection Program (PPP) loan. Eligibility for second PPP loans will be limited to small businesses with 300 or fewer employees that had a decline in gross revenues of 25% or more between comparable quarters in 2019 and 2020. In addition, eligible expenses for loan forgiveness are expanded to include covered operations expenditures, property damage costs, supplier costs and worker protection expenditures incurred during the covered period. The bill also clarified the tax treatment of business expenses paid with PPP proceeds as being tax deductible and simplified the application process for loan forgivability for loans of up to $150,000. Please refer to your local SBA lender for details about the deferral of loan payments and loan forgiveness.
Continuation of Economic Injury Disaster Loan Grant Program: The new law provides additional funding for the $10,000 Economic Injury Disaster Loan (EIDL) Grant Program. Priority for the full amount of the EIDL grant will be given to small businesses (300 or fewer employees) in low-income neighborhoods that had a decline in gross revenue of 30% or more during any eight-week period between March 2, 2020, and Dec. 31, 2021, relative to a comparable eight-week period before March 2, 2020 or during 2019.
- The bill also extended other provisions, including:
- Extension of certain deferred payroll taxes
- Extension of credits for paid and sick family leave
- Extension of and modifications to the Employee Retention Tax Credit
Partner with your Tax Professional
As with any decision involving taxes, consult with your tax professional on considerations and impacts to your specific situation. Your financial advisor can partner with them to provide additional financial information that can help in the decision-making process.
Work with your Edward Jones financial advisor to consider key aspects of the CARES Act as part of your financial strategy.
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.