On December 21, 2020, Congress passed the second round of major stimulus as a follow-up to the CARES Act passed earlier in March 2020. President Trump initially balked at signing the new legislation, citing that he wished to see a higher Recovery Rebate payment for families, but ultimately he signed the legislation as presented on December 27, 2020. While the CAA expanded on some of the relief provided in the earlier CARES Act, it was also notable for a few specific provisions it didn’t include.
Here are some highlights included in the bill:
Recovery Rebate: Qualified families are eligible for an additional advanced rebate of $600 per taxpayer and $600 for each qualified child (compared to $1,200 per taxpayer and $500 per child under the CARES Act). The income thresholds remain the same as under the CARES Act, with phaseouts beginning at $75,000 for Single or $150,000 for Married Filing Joint.
Extended Federal Unemployment Benefits: The earlier CARES Act authorized additional federal unemployment benefits to be paid on top of state unemployment benefits to help individuals affected by the pandemic. However, those federal benefits were set to expire in December 2020, but the CAA extended the benefit for another 11 weeks at a reduced rate of $300 per week (down from the original $600 per week). Employees as well as self-employed individuals remain eligible for the extended federal unemployment benefits.
Enhancements to Paycheck Protection Program (PPP) Loans: The CAA provides significant relief to businesses impacted by the pandemic. In addition to expanding the list of qualified expenses eligible for loan use, the CAA opened the doors for businesses to obtain a second PPP loan. These loans may be forgiven if used to pay for qualified expenses such as wages, rents, utilities, and now certain operational expenditures, property damage due to vandalism, and worker protection expenditures. Also of note, the act specifically allows businesses to deduct expenses paid with PPP loan proceeds, even if the loan is later forgiven.
Equally notable are the provisions NOT addressed in this bill:
No Extension of the 2020 RMD Waiver: Taxpayers will need to resume their Required Minimum Distributions in 2021.
No Extension of Coronavirus-Related Distributions (CRD) into 2021: Last year, individuals affected by the coronavirus could access retirement accounts (IRAs, 401(k)s, etc.) for up to $100,000 without being subject to the 10% early distribution penalty if they were under age 59 ½. Furthermore, these distributions could be paid back within 3 years to “undo” the income. Unfortunately, the CAA did not extend this withdrawal provision into 2021, so be careful when accessing retirement accounts before age 59 ½.
No Further Student Loan Relief: Federally backed student loan payments had been suspended under the CARES Act and through executive order through January 31st, 2021, but the CAA did not further extend this relief.
President Biden has already indicated that a third round of stimulus will be needed, so we are likely to see more legislative changes this year. We will continue to stay on top of the changes impacting our clients, but please reach out to your advisor at any time if you would like to understand how these changes may impact you.
This article was written by retired Merriman Wealth Advisor, Phuc Dang.
Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.
P.S. Don't LET YOUR FRIENDS MISS OUT. Share this article:
At Merriman, we manage your wealth so you can lead your best life. We take care of the financial planning and investment management, so you can deal in more possibilities and have the space you need to dream big.
Because it’s time to stop asking "What should I do?" and start saying, "This is what I could do."
Articles Straight to Your Inbox
Subscribe to Merriman's Envision Newsletter to receive in-depth articles and expert commentary, delivered monthly to your inbox:
"*" indicates required fields