New COVID-19 Relief Package Passed
The Coronavirus Response and Relief Supplemental Appropriations Act of 2021, a $900 billion relief package to deliver the second round of economic stimulus for individuals, families, and businesses, was signed into law Dec. 27, 2020. Please read below for details on what this package includes.
Individual Provisions
Stimulus payments for individuals and joint taxpayers
The bill includes a second wave of direct stimulus payments for millions of Americans – up to $600 for eligible individuals, $1,200 for joint taxpayers, and an additional $600 for each dependent child under 17. This means a family with two children may receive $2,400.
Here is a link to check on your second stimulus payment: https://www.irs.gov/coronavirus/get-my-payment
The IRS has already started sending out $600 payments since the new stimulus law prevents the IRS from sending any second stimulus checks after January 15. However, if you do not receive a payment by January 15th and are eligible for the tax credit, you will receive the credit with the filing of your 2020 tax return. See below for Recovery Rebate Tax Credit.
As with the first-round payments, your second stimulus check is actually just an advanced payment of a new "recovery rebate" tax credit for the 2020 tax year. As such, it won't be included in your taxable income.
How will a taxpayer know if they are eligible to receive a second stimulus payment?
If someone has an adjusted gross income (AGI) of up to $75,000 ($150,000 married filing jointly), they should be eligible for the full amount of the recovery rebate.
As the AGI increases over $75,000 ($150,000 married filing jointly), the stimulus amount will go down. The stimulus check rebate completely phases out at $99,000 for single taxpayers, $136,500 for those filing as Head of Household, and $198,000 for joint filers with no kids under age 17.
The bill also expands stimulus payments to mixed-status households (households with different immigration and citizenship statuses), meaning more households will be immediately eligible for this stimulus than were for the first round. This also may be retroactive, so some individuals that were ineligible for the first stimulus, provided under the CARES Act, may then be eligible to receive that payment as well.
Those people receiving Social Security retirement, disability, Railroad Retirement, VA, or SSI income, and are not typically required to file a tax return, will again receive a stimulus payment. As in the first round, the IRS will use the information from Form SSA-1099, Form RRB-1099, or the Veterans Administration, to generate a stimulus payment.
Recovery Rebate Tax Credit
There will be a new page on the 2020 federal personal income tax return (Form 1040) for the "Recovery rebate credit." This may affect you if you didn't receive a full (or any) first- or second-round stimulus check, you didn't file a 2018 or 2019 tax return, you're married and one spouse doesn't have a Social Security number, your income dropped in 2020, you had a baby in 2020, you're a recent college graduate, or you otherwise had a significant change of circumstances in 2020.
Dependent College Students Won't Get a Second Stimulus Check
For both the first round of payments authorized by the CARES Act in March and the second round of stimulus checks included in the COVID-Related Tax Relief Act, anyone who could be claimed as a dependent on someone else's 2019 tax return (regardless of whether they're actually claimed as a dependent) is not eligible for the cash.
Unfortunately, that hits most college students hard. College students who were 23 or younger at the end of 2019 and who didn't pay at least half of their own expenses that year could be claimed as a dependent on their parents' 2019 tax return. So, those students are out of luck when it comes to stimulus checks.
Independent and Older College Students Can Get Stimulus Money
If a student paid at least 50% of their own living expenses in 2019, they generally couldn't be claimed as a dependent on their parents' 2019 tax return. Likewise, college students who were 24 years of age or older last year typically couldn't be claimed as a dependent on their parents' latest return. Therefore, self-supporting and older students can receive stimulus money.
Extended Unemployment
Unemployment payments will increase by $300 per week and the benefits will be extended until March 14, 2021.
The bill also extends the Pandemic Unemployment Assistance (PUA), which expands unemployment to those who are not usually eligible for regular unemployment insurance benefits. This means that self-employed, freelancers, and anyone with a side business will continue to be eligible for unemployment benefits.
Certain workers who have at least $5,000 per year in self-employment income, but are disqualified from receiving PUA because they also have an employer, could also be eligible for an additional $100 per week in unemployment benefits.
Special lookback for Earned Income Tax Credit and the Child Tax Credit
The special lookback rule will allow lower income individuals to use their earned income from 2019 to determine their Earned Income Tax Credit and the refundable portion of the Child Tax Credit in 2020, since their lower 2020 income could reduce the amount that they are eligible for.
Eviction moratorium and rental assistance
The legislation extends the moratorium on evictions under the CARES Act, designed to protect renters from eviction, until Jan. 31, 2021. Families struggling to pay rent or with past due rent could be able to get assistance with paying past due rent and future rent payments, as well as utility bills.
Flexible spending accounts
Unused balances in flexible spending accounts for health care and dependent care expenses may be carried over from 2020 into 2021, and again from 2021 into 2022, if the employer allows. A special carryforward rule applies to children who turned age 13 during the pandemic.
Partial above-the-line charitable contribution deduction
A charitable contribution not in excess of $300 for individuals and $600 for joint filers made in taxable years beginning in 2021 is allowed to taxpayers who do not itemize. The contribution must be made in cash to a qualified charitable organization.
Minimum age for retirement distributions
The bill modifies §401(a) to allow certain qualified pensions to make distributions to workers who are 59½ or older and who are still working. For certain construction and building trades workers, the age is lowered to 55.
Business Provisions
Business meals deduction
The bill provides a temporary increased allowance to the deduction for business meals when provided by a restaurant. The deduction for business means increases from 50% to 100% for tax years 2021 and 2022.
Employee retention credit
The bill extends and improves the employee retention credit as follows:
The refundable payroll tax credit increased from 50% to 70% of qualified wages each quarter.
The limit on per-employee creditable wages increased from $10,000 for the year to $10,000
for each quarter.
The credit now includes wages paid or incurred from March 13, 2020, through June 30, 2021.
A safe harbor was created allowing employers to use prior-quarter gross receipts to determine
eligibility.
The required reduction in gross receipts changed from 50% to 20% of receipts for the same
calendar quarter in the prior year.
The number of employees counted when determining the relevant qualified wage base
increased from 100 to 500.
New employers who were not in existence for all or part of 2019 are now eligible to claim
the credit.
Excise tax provisions on alcohol production
The bill made permanent provisions of the Craft Beverage Modernization Act, which originally passed as part of TCJA. This permanent relief for the craft beverage industry includes a reduction to excise taxes and simplified recordkeeping requirements for the taxation of producers of beer, wine and distilled spirits.
Expanded paycheck protection program
The bill allows some businesses to receive an additional loan called a “PPP second draw”. The targeted businesses eligible for this loan include smaller and harder hit businesses. To be eligible, business must:
Employ 300 or fewer employees;
Have used or will use the full amount of their first PPP loan; and,
Demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of
2020 relative to the same quarter in the prior year.
Eligible recipients may borrow up to 2.5 times their average monthly payroll costs in either the year prior to the loan or the calendar year. The maximum loan amount is $2 million. The previous 60/40 cost split between payroll and non-payroll costs will continue to apply for forgiveness purposes.
The bill also creates a simplified forgiveness application for loans up to $150,000. The application, which shall not exceed one page, will require the number of employees the employer was able to retain as well as the estimated total amount of the loan used to cover payroll costs.
Contractor paid leave
Contractors who were temporarily unable to work due to facility closures and other restrictions could be able to receive reimbursement for paid leave from federal agencies.
