The long-awaited, second COVID relief package (the Consolidated Appropriations Act or the Act) was introduced into Congress on December 21 and signed by President Trump on December 27. This bill laid out government funding for the next fiscal year as well as provided expanded support to individuals and businesses like its predecessor, the CARES Act, signed nine months ago. In this article, we cover the individual COVID relief provisions included in the Act.
Additional Stimulus Payments
A second Economic Impact Payment, also called the EIP, recovery rebate, or “stimulus”, is included in the Act to support individuals directly. The payment is $600 for each taxpayer, spouse, and qualifying child this round, instead of the $1,200 for each the taxpayer and spouse and $500 per child as provided by the CARES Act.
Like the stimulus payments provided by the CARES Act, if your adjusted gross income (AGI) exceeds certain thresholds, the payment is reduced by 5% of your income exceeding the threshold. The thresholds are:
- $150,000 for those whose filing status is married filing jointly
- $112,500 for those whose filing status is head of household
- $75,000 for all others
Unlike the CARES Act, any eligible taxpayer with a social security number (SSN) qualifies. The initial cycle of payments excluded the entire family if either the taxpayer or spouse on a joint return did not have a SSN. Now, members of the family who have SSN’s are eligible for both rounds of EIP payments as long as either the taxpayer or the spouse has an SSN. Any taxpayer that did not receive either the first or second stimulus payment may claim a credit for the amount they are eligible for when they file their 2020 tax return.
The IRS will again use information on 2019 tax returns to determine AGI limitations. These payments are an advance on a 2020 tax credit, but unlike a tax refund, they are not subject to offset due to defaulted tax or student loan debts, nor do they need to be repaid if it turns out you did not qualify to receive it (based upon 2020 AGI and number of qualifying individuals). And, if the amount of the credit determined on the taxpayer’s 2020 tax return exceeds the amount of advance payments previously received, taxpayers will receive the difference as a refundable tax credit.
Expanded Unemployment Benefits
The CARES Act expanded who was eligible for unemployment benefits, how long an individual could be eligible for pandemic unemployment insurance, and how much an individual could receive in federal pandemic unemployment insurance. This Act maintains coverage for covered individuals while unemployed, partially unemployed, or unable to work because of a variety of COVID-19-related reasons. These benefits were set to expire the earlier of 39 weeks or December 31, 2020. They have been extended to expire the earlier of 50 weeks or March 14, 2021. The amount of federal pandemic unemployment compensation was $600 per week between January 27, 2020 and July 31, 2020; $400 per week from August 1, 2020 through December 26, 2020 (under the President’s Executive Order); and $300 per week from December 27, 2020 through March 14, 2021 under this Act.
Health and Dependent Care Flexible Spending Arrangements (FSA) Modifications
Before this Act, a cafeteria plan could permit the carryover of unused amounts remaining in a health FSA as of the end of the plan year to pay or reimburse a participant for medical expenses incurred up to two and a half months following the end of the plan year, subject to the carryover limit of $550 for 2020. This Act extends the carryover period for 2020 and 2021 to 12 months after the end of the plan year for unused benefits and contributions to health flexible spending and dependent care flexible spending arrangements (the extended grace period).
Additionally, an employer may allow an employee who ceases to participate in the plan during calendar year 2020 or 2021 to continue to receive reimbursements from unused benefits or contributions through the end of the plan year in which the employee’s participation ceased, including any extended grace period.
The Act also provides a special carry forward rule for dependent care flexible spending arrangements where the dependent aged out during the pandemic.
Other Benefits to Individuals:
- The CARES Act allowed individuals to withdraw up to $100,000 of “coronavirus-related distributions” from a 401(k) or IRA penalty-free. The Act specifically allows employed taxpayers the opportunity to take a “coronavirus-related distribution” from a money purchase pension plan penalty-free as well. The tax on the coronavirus-related distributions is spread over three years and recontributions/repayments are permitted regardless of the type of retirement plan from which you withdrew the money.
- The CARES Act increases the allowable amount of a loan from a retirement plan to $100,000 (from $50,000) if the loan is made due to a qualified disaster and meets other requirements. The Act allows for the increased loan amount for 180 days after date of enactment.
- Students are not taxed on certain CARES Act emergency financial aid grants and are able to claim the Lifetime Learning or American Opportunity Tax credit on education expenses paid for by the emergency financial aid grants.
- Eligible educators (i.e. kindergarten through grade 12 teachers) have benefited from a $250 above-the-line deduction for certain education expenses they incur. Amounts paid for personal protective equipment after March 12, 2020, will qualify as deductible education expenses. Note that the deduction for all education expenses remains capped at $250.
- Taxpayers who receive supplemental social security (SSI) or social security disability insurance (SSDI) will be excluded from the private tax collection program being rolled out by the IRS next month.
- For purposes of calculating the refundable Child Tax Credit and Earned Income Credit, an individual may elect to use 2019 earned income to calculate 2020 credits if 2019 earned income is greater than 2020.
- The CARES Act allows individuals who utilize the standard deduction to claim up to a $300 above-the-line deduction for cash contributions to qualified charitable organizations in 2020. The Act extends this rule through 2021 and increases the amount to $600 for married filing jointly individuals.
- The CARES Act allowed individuals to deduct cash contributions to public charities up to 100% (increased from 60%) of AGI for 2020. The Act allows the same for 2021.
For your specific questions relating to your individual tax situation, please call our tax professionals at (816) 743-7700.