Deposits from the pandemic relief package began to show up in bank accounts just before year-end. Some people definitely needed the money for their economic survival, but for many it was an unexpected bonus. In any event, our government borrowed a lot of money to make it all happen, but there was more to the year-end legislation than you might be aware.
The Economic Impact Payments were probably the most anticipated part of the package. The much-debated program sent $600 to individuals and $1,200 to joint filers. Additionally, taxpayers with dependent children under the age of 17 received $600 per child.
Some payments, however, could be less. If you’re a single filer with an adjusted gross income exceeding $75,000 in 2019, the payments are reduced. For joint filers, the phase out begins at $150,000 of AGI.
If you’re eligible and haven’t already received a payment, keep a close eye on your bank account or check the IRS website.
With so many small businesses struggling to stay open, the new bill directs an additional $284 billion to the Paycheck Protection Program(PPP). The intent of the program is to help small businesses stay afloat and keep their employees on payroll.
In the first program, a lack of clear guidelines led to a number of abuses. This time there are restrictions. To be eligible, the business must have sustained a 25% revenue loss during the first three quarters of 2020, and have fewer than 300 employees.
If you’re a business owner and apply, I suggest you keep meticulous records because, if done correctly, it’s possible that Uncle Sam could forgive the loan.
I also found it noteworthy that the bill has provisions for non-itemized charitable donations in 2021. For single filers the amount is $300, and for joint filers $600. I suggest you keep records of all of your charitable donations, especially if you don’t have a receipt.
During the pandemic, I’ve encouraged readers to be generous if they can afford it. I think this provision will encourage donations.
The package also modified the tax code as it applies to unreimbursed medical expenses. In the past, in order to be deductible, your medical expenses had to exceed 10 percent of your adjusted gross income. The new bill permanently changes it to 7.5 percent. This is huge for a person facing large medical expenses.
Another tool designed to help with unreimbursed medical expenses is the Flexible Spending Account (FSA). Many employers in our area provide such an account for their employees.
A line frequently used to describe these accounts was “Use it or lose it.” That’s no longer the case. If you have unused funds in your account from 2020, they can be carried forward into 2021. In a similar fashion, if you don’t use all of your funds in 2021, they can now be carried through 2022.
These are but a few elements of the new stimulus bill; there are many, many more. Keep in mind that the sheer size of the bill could almost crush a compact car. The amount of information is overwhelming.
Does anyone know exactly what’s in it? Our elected officials only had hours to review the bill before its final passage. For tax related issues you should discuss your situation with a professional tax preparer.