Stimulus Round 2 Summary... What's In and What's Out?

The US congress just passed their Covid-19 stimulus bill, or the Consolidated Appropriations Act, 2021. The bill is awaiting presidential approval.

The massive bill and rushed timeline has many Americans and even law makers confused and asking what is actually in the legislation? Here's what we know... so far.

The bill passed in the House and the Senate. In the Senate, the late-night vote was 92-6, with only the following Senators voting NO: Marsha Blackburn (R-TN), Ted Cruz (R-TX), Ron Johnson (R-WI), Mike Lee (R-UT), Rand Paul (R-KY) and Rick Scott (R-FL).

Here’s what’s you need to know:

What’s In.

Spending. The bill costs $2.3 trillion which sounds like a lot considering earlier this month, some in Congress were balking at anything over $900 billion. The majority of the price tag ($1.4 trillion) and a lot of the bill (about 1,815 pages) is a catchall budget package to keep the lights on for the remainder of the fiscal year.

More Spending. In addition to the general budget provisions, there are special Covid-related spending add-ons, including transportation dollars, additional money for health care, including vaccine development & distribution, and additional funding to schools, including private schools.

The Usual Suspects. A budget bill wouldn’t be a budget bill without special interests and earmarked projects like those “sense of Congress” sections and requests for reports (fun fact: the word “report” or “reports” appears more than 1,000 times in the bill). I may do a review of those in a separate article, but I’m a tax writer and I know that’s not what you’re here for...

Unemployment Related Provisions

Unemployment Assistance. Around the 2,000 page mark, the bill tackles unemployment benefits.

The bill would extend Pandemic Unemployment Assistance (PUA) benefits created under the CARES Act through March 14, 2021. Individuals receiving benefits as of March 14, 2021 could continue through April 5, 2021, as long as they have not maxxed out their week count (it had been 39, but would be upped to 50).

The bill would also extend the federal supplement unemployment insurance benefits, but at half the former rate (just $300 per week), starting after December 26, 2020, and ending March 14, 2021.

Finally, the bill would extend Pandemic Emergency Unemployment Compensation (PEUC) benefits through March 14, 2021. As with PUA, individuals receiving benefits as of March 14, 2021 could continue through April 5, 2021, as long as they have not maxxed out their week count (it had been 13 but upped to 24).

Returning To Work Requirements. One of the real sticking points of continued unemployment compensation is a concern about paying benefits when individuals refuse to go back to work. Under the bill, states must provide a suitable method (including phone line, email, or online portal) for employers to notify the state when an individual refuses to work or accept an offer of work when they do not have good cause. The state must also provide a “plain language notice” about return to work laws, rights to refuse to return to work or to refuse suitable work and information on contesting a claim denial. The notice must also include an explanation of what constitutes suitable work, including a claimant’s right to refuse work that poses a risk to health and safety.

Second Round Of Stimulus Checks

Stimulus Checks. The tax-related bits of the bill kick in around page 1,966. New checks worth $600 per person (yes, for children, too) are included in the new relief package. As before, checks will begin to phase out for those who earn $75,000 ($150,000 for married couples filing jointly). Adult dependents - those over age 17 - still won’t qualify. However, those individuals who file jointly with a person who uses an ITIN will be allowed to collect a check (though the person with the ITIN will not).

Payroll Tax Provisions

Extension of Deferred Payroll Taxes. On August 8, 2020, President Trump issued a directive to the Department of Treasury to allow for the deferral of payroll taxes for the period of September 1, 2020, through December 31, 2020.

Under the terms of the directive, penalties and interest on deferred unpaid tax liability were to accrue beginning on May 1, 2021. The bill would extend the repayment period through December 31, 2021, meaning that penalties and interest on deferred unpaid tax liability will not begin to accrue until January 1, 2022.

Employee Retention Tax Credit. The agreement extends and improves the Employee Retention Tax Credit. Specifically, under the CARES Act, the credit only applied to wages paid after March 12, 2020, and before January 1, 2021: the bill would extend the wage period through July 1, 2021. The credit - which used to be equal to 50% of the qualified wages each quarter - has been bumped to 70% and can be used in conjunction with PPP money for wages that are not paid for with forgiven PPP proceeds. And best of all, the $10,000 per employee limit which used to be the aggregate for all quarters is now the limit per quarter. One more tweak: the gross receipts test has been changed to 80% of receipts for the same calendar quarter in 2019.

Paycheck Protection Program

Paycheck Protection Program. The bill would expand the PPP program to allow some businesses to receive an additional loan. The second loan, called a “PPP second draw” loan, is targeted to smaller and harder-hit businesses. Those are businesses with 300 or fewer employees who have used or will use the full amount of their first PPP. They must demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter. Generally, businesses can borrow up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year. The maximum loan amount is $2 million, and for forgiveness purposes, the 60/40 cost split between payroll and non-payroll costs will continue to apply.

The bill also makes clear that PPP forgiveness is not taxable. It further makes clear that deductions are allowable for expenses paid with the proceeds of a forgiven PPP loan (additionally, tax basis and other attributes of the borrower’s assets will not be reduced). That’s retroactive to date of enactment of the CARES Act (March 27, 2020).

The bill creates a simplified forgiveness application (”not more than one page in length”) for loans up to $150,000. The application will require description of the number of employees the borrower was able to retain because of the covered loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. And of course, borrowers will have to attest that they provided the right documents and complied with the loan requirements.

I know you’ll have more questions on this: I am planning a deeper dive and I’ll link to it when it’s available.

Individual Income Tax Breaks

Earned Income Tax Credit (EITC) & Child Tax Credit (CTC) Tweaks. The bill would allow families to receive EITC and CTC based on their 2019 income. That significantly impacts those families whose incomes were reduced because of COVID since your credit is typically higher as you earn more money.

Charitable Giving. In a welcome break, the bill would change the maximum dollar amount for above-the-line adjustment for charitable giving from $300 per return to $600 for a joint return) for 2021. You can find out more about the temporary deduction here (note that the linked article still has the $300 limit since there has not yet been a vote). Additionally, the suspension of limits on cash gifts has been extended through 2021.

Expanded Flexible Spending Arrangements (FSAs). The bill would allow taxpayers to carry amounts from FSAs forward into 2021 (and again into 2022). This would apply to FSAs for health care and dependent care.

Medical Expense Deduction Floor. Beginning in 2021, the medical expense deduction floor is moved permanently to 7.5%. That means that you can deduct (assuming you itemize) medical expenses which exceed 7.5% of your adjusted gross income. Previously, the needle had moved to 10% (and then came down again).

Volunteer Firefighters and Emergency Medical Responders Benefits. The bill would exclude certain state and local benefits for volunteer firefighters and first responders from income.

Change In Education Benefits. Beginning in 2021, the qualified tuition deduction would be replaced. Instead, the phase-out limits on the Lifetime Learning credit would be increased to $80,000 ($160,000 for married filing jointly).

Full Deduction For Business meals. 3-Martini Lunches Are Back. The bill includes a provision to increase the business meals deduction to 100% (it’s currently 50%) for 2021 and 2022.

Social Services

Rental Assistance. The package would allow for an extension of the eviction moratorium through January 31, 2021. There is also $25 billion for rental relief, to be used for future rent and utility payments and back rent owed or utility bills.

Food Assistance. The bill increases food stamp benefits (Supplemental Nutrition Assistance Program, or SNAP). It would also expand the Pandemic-EBT program to cover families with children in child care, and provide support for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) to allow participants to purchase additional fruit and vegetables. Seniors are also included, with funding for senior nutrition services, including Meals on Wheels, and the Commodity Supplemental Food Program to provide food boxes to more senior citizens.

What’s Out

Student Loan Extensions. The bill will not extend federal student loan forbearance provisions (those are current set to expire on January 31, 2021).

State and local funding. Originally included in the bill, state and local funding has been removed. However, Congress did extend the deadline for states and cities to use pre-approved money in the CARES Act. States like mine (Pennsylvania) that had not spent all of their funding would lose it if not spent by the end of the year; the deal would instead extend the deadline until the end of next year.

Liability Protections. Providing liability protections for corporations as a result of the pandemic has been a serious stumbling block between the Senate and the House. The framework had originally suggested that there was “agreement in principle as the basis for good faith negotiations” but it faltered.

Cost

The total price tag of the bill is estimated to be $2.3 trillion, but again, that includes funding of about $1.4 trillion in “catchall” government spending. We covered some of these additional items and controversy in another article.

Click Here to read a full breakdown of the other items included and the president's reaction.

Click Here to Download the PDF of the Bill from the House Website

It's still 2020 so this is quickly developing, we will keep you updated,

Mike