The covid relief stimulus bill passed this week is the fourth wave of stimulus enacted over the last year. It is the largest and most aggressive bill yet. It also turns the focus to individuals, families, and states.
What does the new COVID relief bill mean to me?
There are also several tax changes, including:
- Exempting some unemployment from taxable income,
- Increasing the availability of the child tax credit,
- Increasing the dependent care credit, and
- Increasing the earned income credit.
There is an increase in healthcare subsidies and support for COBRA payments for those who lost their jobs.
It does not change the PPP loans much at all. However, there are some additional grants for restaurants everywhere and small businesses in low-income communities.
And there are funds to help states fight the pandemic.
Below is a summary of the big items. There is significantly more detail than we can cover in this overview, so if you have any questions, please contact us to discuss.
The COVID relief bill includes additional stimulus checks
This round of stimulus includes another stimulus payment of $1,400 per person. Like before, payments are subject to income caps. The phase-out starts at $75,000 per individual, $112,500 for heads of household, and $150,000 for married couples filing jointly.
The phase-out is quick: if you earned more than $80,000 as an individual, $120,000 as head of household, or $160,000 as a married couple, you would not receive any payment at all.
Dependents will also receive $1,400. The last payments included smaller amounts for children up to 15 or 16. This time the amount is the full $1,400 and includes all dependents regardless of age.
Therefore, a family of 4 with a combined AGI of less than $150,000 will qualify for a $5,600 stimulus check.
How will they determine income levels?
Your most recent tax return will determine your income level. If you have already filed your 2020 tax return, the IRS will take your income from that. If you have not filed your 2020 tax return, the IRS will look at your 2019 tax return.
When can I expect payment?
Once the house passes the modified bill and the president signs it, payments should come within a few days.
The COVID relief also extends unemployment benefits
The bill extends unemployment benefits another 25 weeks until September 6. The weekly supplemental benefit stays $300 but, rather than ending in March, will run through September 6.
Note that the benefits you receive in 2021 will be taxed unless there is another bill between now and tax time next year that changes the situation.
And includes a number of tax changes, including:
An expanded child tax credit for the 2021 tax year.
The child tax credit is more generous for 2021. The credit, which has been worth up to $2,000 per child under 17 increases to $3,600 for children under 5 and $3,000 for children 6 to 17. It also makes the full value of the credit available to low-income people who otherwise qualified for only a portion of the credit.
The child tax credit is for your 2021 taxes, but you may receive some of the payment earlier if you qualify.
There is a provision in the bill that allows for prepayment of the child tax credit during the 2021 calendar year. Exactly how this works is not clear yet. The mechanism to claim this credit does not exist.
The idea, however, is that half of the total credit will be paid to you through the year. So, if you would qualify for a $6,000 tax credit in 2021, you would receive monthly payments totaling $3,000 during the calendar year.
An increase in the earned income credit for the 2021 tax year.
If you don’t have children you may benefit from the earned income credit. The maximum credit for childless people will increase from $543 to $1502, and eligibility will kick in at 19 rather than 25. The bill also eliminates the upper age limit of 65.
An expansion of the child and dependent care tax credit for 2021.
This credit is designed to help families pay for care for dependents. It increases the percentage to 50% of eligible expenses (up from 20%), and the total amount increases from $4,000 to $8,000 per eligible dependent.
There is also a significant increase in the income level to qualify. Before, the credit would phase out when your income reached $15,000. For 2021 the phase-out starts at $125,000, and it is a slow phase-out, so even if your income is significantly more, you may qualify for this benefit.
An exemption of unemployment income from taxes
Some people were surprised to learn that unemployment benefits were taxable and faced unexpected tax bills as a result.
The Covid relief bill addresses that at least partially by making the first $10,200 of unemployment payments non-taxable for 2020 only.
Exactly how this will work is unclear: the IRS still has to make the rules. If you already filed your return, you may have to file an amended return, but we don’t know yet.
There is additional support for health insurance.
The COVID relief bill temporarily increases subsidies for people purchasing health insurance through the Affordable Care Act’s marketplaces.
There is also a provision allocating billions of dollars for public health programs and veterans’ health care.
Finally, those who lost their jobs and are on COBRA benefits will get help with their premiums, through September. The bill subsidizes up to 100% of COBRA payments.
There will be no significant changes to the PPP loans in this iteration of COVID relief.
The PPP program will continue much as it has, with some additional access for non-profits and news organizations.
The deadline for the second draw of the PPP loan is March 31, this has not changed.
However, there are some additional targeted funds for the Economic Injury Disaster Loans (EIDL).
Specifically, the legislation makes $15 billion in grants available to businesses in low-income communities with no more than 300 employees.
These businesses must have experienced a 30% decrease in gross receipts over an eight-week period between March 2, 2020, and December 31, 2021, compared to an eight-week period before March 2, 2020.
If you qualify, you will apply through the SBA. However, it may be a few weeks before you can do so since the SBA will have to develop a process.
And a new COVID relief grant for restaurants
The bill creates a $25 billion Restaurant Revitalization Fund (RRF) to help businesses in food services.
Food services include restaurants and bars and food stands, food trucks, food cars, caterers, saloons, inns, taverns, lunges, brewpubs, tasting rooms, taprooms, and any facility in which the patrons gather to be served food or drink.
The grant amount will be equal to pandemic-related revenue loss of $10 million per entity or $5 million for a physical location.
The calculation is (refreshingly) simple: subtract 2020 revenue from 2019 revenue and apply for the difference.
Restaurants can use the funds for:
- Payroll costs;
- Principal and interest payments on a mortgage, not including any prepayments on principal.
- Rent payments, not including prepayments;
- Maintenance expenses including construction to accommodate outdoor seating and walls, floods, deck surfaces, furniture, fixtures, and equipment;
- Supplies including personal protective equipment and cleaning materials;
- Food and beverage expenses within the eligible entity’s scope of usual business practice before the covered period, which runs from February 15, 2020, through December 31, 2021, or another date as determined by the SBA;
- Covered supplier costs;
- Operational expenses;
- Paid sick leave; and
- Any other expenses the SBA determines to be essential to maintaining the eligible entity.
Finally, a significant amount of money goes to states, local governments, and schools to fight the pandemic.
The legislation provides funding for vaccine distribution, testing, contact tracing, genomic sequencing, and support for governments and schools. Including:
- $75 billion for COVID-19 support (testing, vaccines, support for hospitals).
- $350 billion to support state, local and tribal governments.
- $130 billion for K-12 schools and other educational institutions.