The December 2020 COVID-19 stimulus bill has been signed into law by the President and includes many provisions designed to help individual taxpayers continue to weather the pandemic. Among other items, additional funding for unemployment, individual households, vaccine distribution, and small businesses are all included. Our focus in this post includes COVID relief for individual taxpayers. We’ve published a separate post covering changes to the Paycheck Protection Program and other relief measures for small businesses.
Individual stimulus checks
You’ve probably heard a lot of the controversy surrounding the amount of the stimulus check. At this time, the second round of stimulus checks will put $600 per person (including children) into the pockets of individuals earning up to $75,000 and couples earning up to $150,000. For the purposes of this stimulus, a child is defined as a dependent aged 16 or younger, and there’s no cap on the number of children per household. As we saw with the CARES Act, dependents aged 17 and older will not receive the stimulus. Taxpayers will see their check decrease by $5 for every $100 of income above the threshold. Individuals earning above $87,000, and couples earning over $174,000, will not receive a check.
Funds will be issued in the same way they were previously. Those taxpayers with direct deposit information on file with the IRS will receive a deposit, and some of those funds have already begun to hit taxpayer accounts. Those without direct deposit will receive a check in the mail or a prepaid debit card.
Recall that during the last round of stimulus, scammers kicked into high gear in an attempt to con taxpayers out of their stimulus funds. You can expect to receive a letter from the IRS in the mail within about 15 days of receiving your payment—any other message claiming to be from the IRS about your stimulus should raise red flags. The IRS will never initiate contact with you via email, social media, or text message. Report anything suspicious directly to the IRS, and be sure to verify the legitimacy of any contact from the IRS prior to divulging personal information.
$300 extra in unemployment per week (through 3/14)
The relief bill includes an extension of the Unemployment Insurance Compensation Benefits. The government will provide an additional $300 per week, extending through March 14th, 2021. Workers who are traditionally ineligible for unemployment assistance, such as gig economy workers and other independent contractors, can also receive benefits.
Moratorium on evictions through 1/31/2021
The original CARES Act established a nationwide ban on evictions for renters unable to pay rent, which was extended once by President Trump but was set to expire by the end of 2020. As so many Americans and business owners are still struggling financially, the bill extends a moratorium on those eviction proceedings through January 31. The bill also provides $25 billion in funding to state and local governments to help qualified renters pay for utilities and rent.
Child tax credit and Earned Income Tax Credit changes
The bill includes adjustments to how the Child Tax Credit and Earned Income Tax Credit (EITC) are calculated for the 2020 tax year. The provision will use 2019 income to determine the tax credit eligibility for the 2020 tax year, helping to offset the impact of reduced 2020 income.
Above-the-line charitable contributions in 2021
The CARES Act established an above-the-line charitable contribution deduction of $300, enabling taxpayers who don’t itemize to take advantage of the deduction. In 2021, the same deduction will increase to $600 for couples married filing jointly and remain at $300 for all other taxpayers.
Flexible Spending Account (FSA) balance rollovers
Typically, funds in FSA accounts are restricted by use-it-or-lose-it rules at the end of the year. The Relief Bill allows FSA account holders to roll their balances into 2021 and even 2022. This provision enables those with reduced childcare expenses in 2020 to save those funds for the coming years.
COVID vaccine funding
Another notable part of the bill is aimed at funding vaccine distribution. The bill includes $20 billion for the purchase of vaccines to make them available to anyone who needs them at no charge. This section also provides additional funding for COVID testing; vaccine development and distribution; tracing efforts; and other pandemic-related healthcare initiatives.
Looking for more information about how the COVID Relief bill will impact you, your business, and your 2020 tax return?
We’ve published a separate post covering PPP changes, the ERTC, new funding for EIDL grants, and other relevant measures supporting small businesses. View the recording of our January 14, 2021, webinar on the Consolidated Appropriations Act of 2021.