Skip to Content







In late-December 2020, while the country was in the throes of a worsening Coronavirus pandemic and widespread political angst, then-President Donald Trump signed into law a $900 billion stimulus bill.  It was included in the 5,000+ page Consolidated Appropriations Act.  The relief package provided stimulus checks to qualified taxpayers, additional jobless benefits and assistance for struggling businesses.  Additionally, it provided much-needed funding for vaccine distribution and a variety of tax changes.

$600 Stimulus Checks

Taxpayers with income below applicable thresholds received payments for themselves and for children that are eligible for a Child Tax Credit (under age 17).  The adjusted gross income thresholds, which is where payments begin to phase out are the same as they were under the CARES Act (Single Filer:  $75,000, Joint Filer:  $150,000).  Returns for the 2019 tax year were used to determine eligibility.

Additional Unemployment Benefits

Acknowledging the continuing impacts of high unemployment on the economy and the mood of the country, the bill expands unemployment benefits for people in a variety of circumstances.  Normal federally subsidized benefits were extended eleven weeks.  The Pandemic Unemployment Assistance program, which provided benefits to taxpayers that would not normally be eligible for unemployment benefits (i.e., self-employed individuals, part-time employees), was also extended eleven weeks.

One of the most controversial pieces of the CARES Act was the $600 of additional weekly benefits paid to unemployed individuals on top of their state-determined benefits.  The new bill provides for additional weekly benefits of $300.  Nationally, the average unemployment benefit paid to individuals is just under $400.  While it is not as impactful as the $600 supplement, the change increases benefits by nearly 75% for most.

Assistance for Businesses

Small businesses, nonprofit organizations and news outlets welcomed the news that the bill includes over $284 billion for a new and improved version of the Paycheck Protection Program.  The Paycheck Protection Program Part 2 is an enhancement of the original program put into place by the CARES Act.  The new legislation also expanded the Employee Retention Credit program.

Paycheck Protection Program Part 2 (PPP2) was crafted to provide additional funding to businesses that received and spent forgivable loans under the Paycheck Protection Program (PPP).  The pool of eligible businesses is smaller this time around as it applies only to businesses with 300 or fewer employees (Accommodation and Food Services companies are exempt from this limitation.).

In addition to providing additional funds to businesses that participated in PPP, businesses that did not participate in the original program are again being granted the opportunity to apply for these forgivable loans.

PPP2 has noteworthy tax implications for businesses.  Like PPP, forgiveness of debt will not result in income to the business.  Ordinarily, when a taxpayer has debt forgiven the amount of debt forgiven must be reported as ordinary income.  Unlike PPP, the bill clearly states that expenses paid with PPP2 funds will be deductible on the business’s tax return.  In addition, PPP2 expands the types of expenses that may be incurred when spending unused loan proceeds from the original PPP or new loans.

Additional benefits to businesses under PPP2 include a simplified forgiveness application for loans of $150,000 or less.  Businesses may now apply for loan forgiveness on a one-page document.  Businesses will be able to treat additional insurance costs as payroll expenses, which is important because no less than 60% of the forgivable amount of these loans must be attributable to payroll expenses—this is about protecting jobs, after all.  Finally, businesses that returned PPP loans due to uncertainty over qualification requirements may apply again.

The Employee Retention Credit was extended and expanded by the Appropriations Act.  One significant change is businesses may now apply for both PPP forgivable loans and the Employee Retention Credit (ERC) (provided they do not use the same payroll expenses to qualify).  Significant changes were made to eligibility and benefits, which apply through December 2021.  Employers are eligible to receive a tax credit of as much as $7,000 per employee per quarter (contrast with $5,000 for the entirety of 2020 under the CARES Act).  Qualification for the credit is based on a drop in revenue of 20% or more in a 2021 quarter when compared to 2019 revenues (or the revenues in the immediately preceding quarter).  This compares most favorably to the 50% requirement contained in the CARES Act.

Tax Relief

The upward adjustment of the AGI limit on cash contributions to charity from 50% to 100% as part of the CARES Act was extended for 2021.  Contributions to Donor Advised Funds are excluded from this temporary rule change because legislators want cash in the hands of struggling charities this year.

The above-the-line deduction for charitable contributions was extended for 2021.  The maximum deduction was $300 for all tax filers, regardless of filing status, in 2020.  The Appropriations Act extended this deduction for 2021 and made the maximum deduction contingent on filing status (Single Filer:  $300, Joint Filer:  $600).  This deduction applies to taxpayers that do not itemize deductions.

Employees may carry forward unused Flexible Spending Account balances for 2021.

The limitation on medical expense deductions was permanently eased from 10% of adjusted gross income for most taxpayers to 7.5%.

The above-the-line tuition and related expenses deduction for education was replaced by a more generous Lifetime Learning Credit.  These changes are permanent.

Taxpayers will continue to escape tax on forgiveness of qualified principal residence indebtedness.  The bill extended this through 2025, but the amount that may be excluded from income falls to $750,000 from $2 million.

The three-martini lunch is back!  Businesses will be allowed to deduct 100% of meal and entertainment expenses incurred at restaurants in 2021 and 2022.

Sources

  • https://taxfoundation.org/coronavirus-relief-bill-stimulus-check/
  • https://www.wsj.com/articles/second-stimulus-checks-when-will-the-covid-19-money-be-delivered-11609195873
  • https://www.onedigital.com/blog/consolidated-appropriations-act-2021/
  • https://www.kitces.com/blog/coronavirus-stimulus-2-omnibus-consolidated-appropriations-act-2021-stimulus-checks/
  • https://www.natlawreview.com/article/coronavirus-president-trump-signs-consolidated-appropriations-act-2021-summary-tax

 

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the  future  performance  of  any  specific  investment,  investment  strategy,  or  product (including  the  investments  and/or  investment  strategies  recommended  or  undertaken by Private Ocean,  LLC[“Private  Ocean”]),  or  any  non-investment  related  content,  made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated  historical  performance  level(s),  be  suitable  for  your  portfolio  or  individual situation,  or  prove  successful.    Due  to  various  factors,  including  changing  market conditions  and/or  applicable  laws,  the  content  may  no  longer  be  reflective  of  current opinions  or  positions.    Moreover,  you  should  not  assume  that  any  discussion  or information  contained  in  this  blog  serves  as  the  receipt  of,  or  as  a  substitute  for, personalized investment advice from Private Ocean.  Please remember that if you are a Private Ocean client, it remains your responsibility to advise Private Ocean, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or  if  you  would  like  to  impose,  add,  or  to  modify  any  reasonable  restrictions  to  our investment advisory services. To the extent that a reader has any questions regarding the applicability of any  specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Private Ocean is  neither  a  law  firm  nor  a  certified  public  accounting  firm  and  no  portion  of  the  blog content should be construed as legal or accounting advice. A copy of the Private Ocean’s current written disclosure Brochure discussing our advisory services and fees is available for  review  upon  requestor  at www.privateocean.com. Please  Note: Private  Ocean does not  make  any representations  or  warranties  as  to  the  accuracy,  timeliness,  suitability, completeness,  or  relevance  of  any  information  prepared  by  any  unaffiliated  third  party, whether  linked  to Private  Ocean’s web  site  or blog  or  incorporated  herein,  and  takes  no responsibility   for   any   such   content. All   such   information   is   provided   solely   for convenience  purposes  only  and  all  users  thereof  should  be  guided  accordingly. Please Also  Note: IF  you  are  a Private  Ocean client, Please  advise  us if  you  have  not  been receiving account statements (at least quarterly) from the account custodian.