Financial Insights

Covid-19 Aid Bill Highlights For Individuals

Last night, under pressure from both parties, President Trump signed the aid bill Congress passed after days of uncertainty and confusion in Washington.  The bill carried overwhelming bipartisan support and is arguably a lifeline to many Americans at a time when it is most needed.

The “Coronavirus Stimulus 2.0” bill passed as an attachment to a much larger “Consolidated Appropriations Act of 2021”, which included a host of provisions unrelated to individual taxpayers and that President Trump considered wasteful.

The bill avoids a potential government shutdown (it funds the government through Sept. 2021), provides direct payments to many Americans, extends a federal eviction prohibition, and restarts two pandemic relief programs (one provided unemployment benefits for contract/gig workers and the other provided up to 13 weeks of additional payments to individuals who exhausted other programs) that lapsed over the weekend and were recently providing roughly 14 million people with benefits.

In short, the bill extends and amends various expiring tax provisions and addresses several financial planning issues.  Fortunately, none of the provisions appear to create any last minute, end-of-year planning.

Here are the highlights for individuals:

If a taxpayer’s 2019 was low enough to receive a payment, but whose 2020 income was high enough that they should have been phased out, then there will be no “clawback” and they will not have to repay anything.  In contrast, if a taxpayer’s 2019 income was high enough to phase them out, but their actual 2020 AGI is lower and would have produced a higher rebate, then the difference between the two amounts will be added as a credit when they file their 2020 tax returns.

The House is still set to vote on increasing the Additional Recovery Rebate from $600 to $2,000 today.

Unemployment compensation is also increased by $300 per week for 11 weeks on top of regular state-determined unemployment compensation.  The contentious $600 per week benefit that was provided by the CARES Act was available for four months and ended earlier this year.  The $300 benefit revives a reduced version of this provision and will still nearly double the nationwide average state unemployment benefit of $400.

Individuals are generally ineligible to receive unemployment benefits for the first week that they are unemployed, when it may be particularly valuable.  The CARES Act provided funds to states to waive this requirement and the Appropriations Act does the same for an additional 11 weeks.

A ban on surprise medical bills, which sometimes occur when a patient unexpectedly/unknowingly gets care outside of a network and particularly when visiting an emergency room.  Going forward, insurance companies will have to work these out with providers, with the exception of ambulance rides, which were curiously not included.

Businesses that received PPP loans and had them forgiven faced tax confusion. The new bill will make it clear such businesses will be allowed to deduct the costs covered by those loans.

PPP2 loans will be available to first-time qualified borrowers and to businesses that previously received a PPP loan for up to $2 million, provided they have 1) 300 or fewer employees, 2) have used or will use the full amount of their first PPP loan and 3) can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

The Act also allows FSA participants to modify their 2021 contributions (contributions are typically irrevocable) for 2021 only.

Other items of note:

What’s not include in the bill?

Given that the House is expected to vote on potentially increasing the Stimulus Check amount to $2,000 today and the fact that many of the important provisions above are only extended temporarily, we all should expect more changes to these provisions, and particularly with a new administration taking office, in 2021.

We will provide updates as provisions are changed in the future.  In the meantime, and as always, please reach out to your ACM Wealth Advisor with any questions  on these issues or if there have been any changes to your financial situation.

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.

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