Coronavirus Stimulus Bill: What’s In It for You?

U.S. $100 bill
 

A $600 check!

Maybe.

You probably heard about the recent stimulus bill that was signed into law late last year, aka the “Coronavirus stimulus 2.0 bill” or the “COVID-19 relief bill”.

The headliner of the bill was that many people would be getting a $600 payment per family member.

But there's a lot more than that in the 5,593-page, inspirationally-named “Consolidated Appropriations Act, 2021”.

Highlights include

  • Up to $600 payment per eligible person

  • Expanded unemployment benefits

    • Regular unemployment compensation extended another 11 weeks

    • Regular unemployment compensation increased by $300 for 11 weeks

    • Unemployment compensation for self-employed individuals extended another 11 weeks

  • Funds in FSAs (Flexible Savings Accounts) not used by 2020 year-end may be rolled over into 2021 if your employer allows it

  • Medical expense deduction threshold lowered from 10% of AGI to 7.5% of AGI

  • Lifetime Learning Credit for education expenses now has a higher income phaseout

  • Charitable contributions are deductible up to $300 (Single) or $600 (Married Filing Jointly) for 2021 if you don’t itemize deductions

  • 2019 earned income can be used to determine eligibility for 2020 Earned Income Credit and the Additional Child Tax Credit

  • Employer-paid student loan assistance is tax-free through 2025

  • Debt discharged for a principal home (due to a short sale) remains non-taxable through 2025

  • $250 deduction for teachers paying for classroom supplies can include COVID-19-related supplies

  • Mortgage insurance premiums remain deductible through 2021

  • If you're actually reading this bullet, I'm super impressed

  • Energy-Efficient Homes Credit and Qualified Fuel Cell Motor Vehicle Credits extended through 2021

  • The FAFSA (application for aid for college students) is being simplified

  • All sorts of business-related benefits, such as:

    • Additional PPP (Paycheck Protection Program) funding

    • Expenses paid with PPP loans are deductible

    • PPP loans can be used for more eligible expenses

    • Simplified PPP forgiveness applications for loans less than $150K

    • Expansion of the Employee Retention Credit

    • Eligible meal expenses are 100% deductible

It's also worth pointing out a few things that are NOT included in the new law:

  • RMDs (required minimum distributions) from retirement accounts are not being waived for 2021 like they were for 2020. That means they're required again for 2021.

  • No further student loan relief. So, as of now, federal student loan payments are scheduled to begin again after January 31, 2021.

Summary of all provisions

I'm not going to give a detailed summary of each provision listed above, but I will explain the $600 stimulus checks since that's the one people seem to have the most questions about.

For a summary of most of the above provisions, see this: TaxFoundation.org: Stimulus summary

And if you want to get really detailed, into the nitty-gritty, because you're a nerd like me, see this: Kitces.com: Stimulus summary

$600 stimulus checks

Technically speaking, this is a 2020 tax credit called an “Additional Recovery Rebate” that you'll take on your 2020 tax return (which you’ll file in 2021). However, depending on your 2019 AGI (adjusted gross income), you may receive a "rebate check" before filing your taxes.

This set up is very similar to how the first round of stimulus checks worked. If you received a stimulus check earlier in 2020, you'll most likely receive a check this time as well. If you didn't receive a check, you probably won't receive one this time either.

However, that doesn't necessarily mean you won't still receive the credit.

Let's unpack this a bit.

(If you want to skip the details, feel free to scroll down to the end to find a link to an online calculator that will tell you how much you'll receive.)

Am I eligible to receive the credit?

Some people will receive this credit, some people won't.

The basic idea is that if your income (as measured by your "AGI" - adjusted gross income from your tax return) is below certain levels, you'll receive this credit.

(To find your AGI, check out the first page of your 2019 Form 1040, Line 8b.)

(If you didn’t file a tax return for 2019, but did for 2018, go to the second page of your 2018 Form 1040, Line 7)

Thresholds:

  • If you file taxes as Single, Married Filing Separately, or Qualifying Widow(er) and your AGI is $75,000 or less, you'll receive the full credit.

  • If you file taxes as Married Filing Jointly and your AGI is $150,000 or less, you'll receive the full credit.

  • If you file taxes as Head of Household and your AGI is $112,500 or less, you'll receive the full credit.

  • If your AGI is above those thresholds, then your credit amount (if any) depends on how many children age 16 and under you can claim the Child Tax Credit for.

For each eligible person (yourself, your spouse, and each child age 16 and under), you can receive up to $600. You'll receive the full $600 per person if your AGI is below the thresholds above.

If your AGI is above the thresholds above, your credit is reduced by $5 for every $100 that your AGI is over the threshold.

Here's a graphical representation of how the credit phases out, depending on your tax filing status and number of qualifying children.

 

Yeah, it's confusing.

Will I receive a check?

It depends on the AGI on your 2019 Federal tax return. Check out the first page of your 2019 Form 1040, Line 8b.

(If you didn’t file a tax return for 2019, but did for 2018, go to the second page of your 2018 Form 1040, Line 7)

If that number is less than the eligibility thresholds listed above, you'll receive the entire credit in the form of a check sent to you.

If that number is more than the eligibility thresholds listed above, then you may or may not receive a check, depending on your tax filing status, number of children, and the amount your AGI was over the applicable threshold.

Also, it’s worth pointing out that even if you qualify, you might not receive a “check” at all. You may receive the payment by direct deposit, check, or debit card.

(Update on January 7: The IRS issued information about the debit cards that are being sent out, complete with pictures of what the debit card and envelope look like.)

So, if my 2019 AGI is too high, I'm out of luck?

Maybe. It actually depends on your 2020 AGI.

But that won't be calculated until you file your 2020 taxes.

I mentioned above that this is a 2020 tax credit. That means it will be "reconciled" on the 2020 tax return. So if your 2020 AGI is below the applicable thresholds, you'll receive the credit.

Basically what happens is the credit is calculated on your 2020 tax return, and then any amount you received via check is subtracted from that amount.

Pro tip: To prove (or remind yourself of) what you received for the 1st stimulus check earlier this year, make sure to keep the letter that was sent to you that shows how much you received. It most likely was from the White House and was labeled Notice Number 1444. You will probably receive a similar letter for the 2nd stimulus check.

But what if I receive a payment based on my 2019 AGI, but then my 2020 AGI is too high? Do I have to give the money back?

Good news on this front. The answer is no!

Generally, the IRS won't require you to "pay back" any stimulus rebate you receive now, even if your 2020 AGI is too high.

Here's a grid showing how this will work:

 

Ok, bottom line Keith, how much will I receive?

You're in luck. My friend Mike Zung, founder of Java Wealth Planning, put together this calculator that will show how much you'll receive via check and/or via your 2020 tax return. Just grab your 2019 Federal tax return, enter in a few numbers, and the magic happens. Note that it also gives the option of signing up for his fantastic newsletter (though you don't have to!).

Java Wealth Planning: 2020 stimulus calculator

There are also other online calculators out there if you’d prefer to go somewhere else. For example:

Kiplinger: 2020 stimulus calculator

AARP: 2020 stimulus calculator

And if you’re getting antsy and would like an update on the status of your stimulus payment, you can go to this IRS page and click the “Get My Payment” button:

IRS: Economic Impact Payments

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