Over the Christmas Holiday, President Trump signed into law the latest COVID relief legislation passed by the House and the Senate last week.
Three items of immediate interest to our clients:
- Business expenses paid for with the proceeds of PPP loans aretax deductible
- A second round of Stimulus checks for qualifying Americans at $600 per individual
- Supplemental federal unemployment benefits of $300 per week will continue into April 2021 instead of ending in December.
We know that more guidance will be provided as this rolls out, but below are the highlights as reported by the National Association of Tax Professionals this morning:
PPP and small business support: New COVID-19 relief package provides much needed support for small businesses. Business expenses paid for with the proceeds of PPP loans are tax deductible, consistent with Congressional intent in the CARES Act. In addition, the loan forgiveness process is simplified for borrowers with PPP loans of $150,000 or less. Unspent funds totaling $138 billion will be reinvested in the PPP program.
Economic impact payments (EIP): The bill includes a second round of EIPs for qualifying Americans.
The IRS will use the data it already has in its system to begin making payments at the end of December through the first two weeks of January. If the IRS has your direct deposit information, you will receive a payment that way. If it does not, you will receive your payment as a check or debit card in the mail. If you are eligible but don’t receive your check for any reason, you can claim the payment when you file your 2020 taxes in the spring of 2021.
In regards to eligibility, any person who has a valid work-eligible Social Security number (SSN), is not considered as a dependent of someone else and whose adjusted gross income (AGI) does not exceed certain thresholds (see below) is eligible to receive the credit. This means workers, those receiving veterans' benefits, Social Security beneficiaries and others are all eligible.
- Spouses of military members are eligible without an SSN
- An adopted child can use an Adoption Tax Identification Number to be eligible
Under the CARES Act, joint returns of couples where only one member of the couple had an SSN were ineligible for a rebate. This latest round of relief changes that provision. These families will now be eligible to receive payments for the members of the family who have SSNs. This change is retroactive, meaning those who fall under this category who missed out on the first round of EIPs can claim that money when filing 2020 tax returns in the spring of 2021.
The full credit amount is $600 per individual, $1,200 per couple and $600 for children. It is available for individuals with AGI at or below $75,000 ($112,500 for heads of household), and couples with AGI at or below $150,000. If you have children, you will receive an additional $600 per child.
For those above this income level, your tax rebate amount will be reduced by $5 for each $100 your AGI exceeds the above thresholds.
This means:
- An individual without children will not receive any rebate if their AGI exceeds $87,000.
- A couple without children will not receive any rebate if their AGI exceeds $174,000.
- A family of four will not receive any rebate if their AGI exceeds $198,000.
The IRS will use the same methodology for calculating payments as it did for the first round of economic impact payments.
Unless obtained by fraud, rebate checks do not need to be repaid. If an individual experienced an income loss in 2020, or if they have an increase in family size, they may be able to claim an additional credit of the difference when the individual files their 2020 tax federal income tax return in spring of 2021.
If you are eligible and the IRS does not have your direct deposit information, you will receive your payment as a paper check or a debit card as long as the IRS has your address. If the IRS does not have updated contact information for you, you can claim the payment when you file a tax return in spring 2021.
Someone who is claimed as a dependent on another taxpayer’s tax return is not eligible to receive the $600 refund check themselves. Children 17 and older are not eligible for the $600 per child tax credit.
For those with taxable income, you will need to file a tax return for the 2020 tax year, which you can do during the coming filing season that is expected to begin in late January and end on April 15, 2021. Those with little or no taxable income are encouraged to use the IRS’ free file program.
Other than Social Security beneficiaries (retirement and disability), railroad retirees and those receiving veterans' benefits, individuals with no taxable income will be able to file a simple form provided by the IRS specifically for the purpose of receiving the rebate check.
Social Security retirement and disability beneficiaries, railroad retirees and those receiving veterans' benefits do not need to file to receive their rebate. The IRS has worked directly with the Social Security Administration, Railroad Retirement Board and the Veterans Administration to obtain information needed to send out the rebate checks the same way benefits are paid.
The credit is not taxable, consistent with other refundable tax credits.
The rebate is considered a tax refund and is not counted towards eligibility for federal programs for both income and asset test purposes. The rebate checks are not subject to the majority of offsets, including student debt and state debts. The only administrative offset that will be enforced applies to those who are subject to a child support garnishment court order.
A family with a child born in 2020 is eligible for the $600 per child rebate amount (assuming all other requirements are satisfied). The IRS will calculate the payment based on the most recent tax data in its system. If a child was born since the family’s last filing, the family will not automatically receive the $600 rebate amount for the child born in 2020. To receive the credit the family can claim the $600 credit on their 2020 tax return filing made in spring 2021.
If you believe you are eligible for an economic impact payment but did not receive a round one or round two payment, you will have the opportunity to claim the payment on your 2020 tax return. This year’s tax forms will provide a place for individuals to claim the payments. If you don’t normally file taxes and are eligible for a payment, make sure to file a return this spring to claim the payments.
The IRS has not announced the exact date the coming filing season will begin, but it typically begins near the end of January. If you need to update your information by filing your tax return, keep an eye out for an IRS announcement about the start of the filing season.
Individuals can claim the payment by filing a simple tax return when the tax filing season opens in late January 2021.
Unemployment assistance: For those who are unemployed, the pandemic unemployment insurance program will be extended by 16 weeks. Supplemental federal unemployment benefits of $300 per week will continue into April 2021 instead of ending in December.
Rental assistance: The current CDC eviction moratorium will be extended until Jan. 31, 2021.
Student loans: Extension of student loan forbearance provisions created in CARES and extended by executive order, from the current expiration date of Jan. 31, 2021 through April 1, 2021.
Advantage Tax Group and the National Association of Tax Professionals will continue to monitor the rollout of this new legislation and keep you informed.