Sunday January 24, 2021
COVID Stimulus Checks Expected Next Week
The COVID Relief stimulus bill passed by Congress on December 22, 2020, included a second round of stimulus checks. The stimulus checks would be $600 per individual and $1,200 for a married couple filing jointly, with an additional $600 per qualifying child. The payment per individual would be lower than the previous CARES Act check, but the amount per child would be increased from $500 to $600.
The payments would be made to individuals with incomes of $75,000 or less. Married couples may have incomes up to $150,000. The payments would be phased out for higher income levels -- there would be no stimulus checks for individuals with incomes over $87,000 or for married couples with incomes over $174,000.
Treasury Secretary Steven Mnuchin said the Internal Revenue Service will send checks out very promptly. Individuals who have direct deposit information on the IRS computers may start to receive checks next week.
Mnuchin stated, "People are going to see this money the beginning of next week. Much needed relief — and just in time for the holidays. This is a very, very fast way of getting money into the economy."
In addition to the individuals who have direct deposit information on file with the IRS, many other recipients would promptly receive checks. Stimulus payments would be sent to Social Security beneficiaries, Disability Insurance recipients, Supplemental Security Income recipients, Railroad Retirement Board beneficiaries and Veterans Administration beneficiaries.
Taxpayers generally are required to have a Social Security Number to receive the payment. However, if a married couple has one spouse with a Social Security Number, the couple will receive a payment of $600 and an additional $600 per qualifying child.
If you receive an advance payment that exceeds the amount of your eligible amount, you will not be required to repay that. If your payment is less than the amount you should receive, you can claim the balance on your 2020 tax return.
Congress added protections for stimulus check recipients. Economic Impact Payments are typically not subject to an offset for any prior federal or state debts. They are also protected from bank garnishment or levy by debt collectors.
Editor's Note: Due to the holidays on December 24 and 25, at publication time the President had not yet signed the COVID bill. While he hoped for a larger stimulus check per individual, it is probable he will sign the bill. Millions of Americans with service jobs in the retail, restaurant and hotel industries are living on the financial edge. The $600 stimulus checks (or $2,400 for a family of four) will be a very welcome benefit.
COVID Stimulus Bill (H.R. 133) Tax Provisions
In addition to expanded charitable giving provisions in the COVID relief bill, there are multiple tax sections with substantial benefits to individuals and businesses. These tax provisions are designed to maintain and increase employment.
PPP Loan Deductions — Many small business recipients of PPP Loans were concerned that the expenses covered by the loan might not be deductible. Treasury Secretary Steven Mnuchin and the IRS had opposed the deduction for expenses covered by the PPP Loans because there would be a double benefit. However, Senate Finance Committee Chair Chuck Grassley (R-IA) strongly supported the tax deduction. Senator John Cornyn (R–TX) previously introduced a bill to make the expenses covered by a PPP Loan deductible. He stated, "By clarifying that expenses paid with a forgiven PPP loan can still be deducted from small business taxes, we can help ensure small businesses will not be hit with yet another hardship during an already difficult year."
Employee Retention Credit — The CARES Act included an employee retention credit that would cover up to $10,000 per employee for one year. The employee retention credit was expanded and the credit rate changed to cover more employees. It was also made available to businesses that had received a PPP Loan. The expansion was championed by Sen. Ron Wyden (D–OR). He stated, "Ensuring businesses can access relief from both programs is critical." Wyden was the prime advocate for increasing the credit rate from 50% to 70% of qualified wages and changing the credit from $10,000 a year to $10,000 for each quarter.
Deferred Payroll Taxes — An executive order was published that created a payroll tax holiday for the last four months of 2020. The forgiven payroll taxes were to be repaid during the first four months of 2021. The stimulus bill changed the repayment schedule to twelve months of 2021.
Business Meal Deductions — The deductions for business meals for 2021 and 2022 were increased to 100%. This change was supported by Sen. Tim Scott (R–SC). He noted that large numbers of service workers in the restaurant industry were unemployed and restoring this deduction will assist struggling restaurants.
Lookback for Earned Income Tax Credit — Many low–income individuals qualify for earned income tax credits. The Earned Income Tax Credit and the Child Tax Credit are affected by the level of earned income. The stimulus bill would allow individuals to use their 2019 income to determine the amount of the credits. This may help taxpayers who had significantly less income in 2020 due to the COVID-19 pandemic.
Medical Expense Floor — The itemized medical expense deduction was subject to a floor of 7.5% of adjusted gross income (AGI). The law raising the medical deduction floor to 10% would be permanently repealed and the 7.5% threshold would apply for all taxpayers.
Solar Energy Property Credit — The 2020 credit for solar energy property, fuel cell property and small wind energy property is 26%. This was scheduled to be reduced to 22% in 2021. The COVID stimulus bill would extend the 26% solar energy credit until the end of 2022.
Expanded Universal Charitable Deduction in 2021
The COVID stimulus bill included two excellent benefits for charitable giving in 2021. In the CARES Act earlier this year, there was for the first time a charitable deduction for nonitemizers. This above-the-line deduction is $300 for both individuals and couples for cash gifts made in 2020. Because the standard deduction has increased to $24,800 for married couples and $12,400 for individuals, about 90% of taxpayers do not itemize. These individuals who take the standard deduction may benefit in 2020 from $300 of their charitable gifts.
Fortunately, for 2021 the Universal Charitable Deduction (UCD) would be extended for individuals and doubled to $600 for couples filing jointly. This expansion and extension of the nonitemizer deduction will benefit millions of Americans and their favorite charities.
The COVID relief bill does change the Section 6662 penalty for overstating qualified charitable contributions. The penalty amount would be increased from 20% to 50%.
The Charitable Giving Coalition (CGC) was pleased with the UCD expansion in 2021. They had previously sent a proposal to Congress to increase the deduction to $600 for single filers, and $1,200 for joint filers. CGC issued a press release and stated, "The temporary above–the–line charitable deduction enacted in the CARES act is a policy that has encouraged Americans to give more."
Tim Delaney represents the National Council of Nonprofits. He stated, "Congress and the Administration have failed the American people by not acting early enough or doing enough. It took far too long to pass a bill that does not do enough for our communities. Congress must pass more comprehensive relief immediately upon returning to Washington in 2021."
Delaney continued by noting, "Since March, charitable nonprofit organizations have shed nearly one million jobs and thousands of organizations are now permanently shuttered." The National Council of Nonprofits pledges to continue to seek an expansion of the universal charitable deduction in future years.
Editor's Note: The COVID relief bill would also extend the 100% charitable deduction limit for 2021. The expanded limit is for cash contributions but excludes gifts to supporting organizations or donor advised funds. Below is the text of the two charitable deduction sections in the bill.
COVID Bill (H.R. 133) Charitable Tax Provisions
SEC. 212. CERTAIN CHARITABLE CONTRIBUTIONS DEDUCTIBLE BY NON-ITEMIZERS.
(a) IN GENERAL.—Section 170 is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:
(p) SPECIAL RULE FOR TAXPAYERS WHO DO NOT ELECT TO ITEMIZE DEDUCTIONS.—In the case of any taxable year beginning in 2021, if the individual does not elect to itemize deductions for such taxable year, the deduction under this section shall be equal to the deduction, not in excess of $300 ($600 in the case of a joint return), which would be determined under this section if the only charitable contributions taken into account in determining such deduction were contributions made in cash during such taxable year (determined without regard to subsections (b)(1)(G)(ii) and (d)(1)) to an organization described in section 170(b)(1)(A) and not—(1) to an organization described in section 509(a)(3), or (2) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in section 4966(d)(2)).
(b) PENALTY FOR UNDERPAYMENTS ATTRIBUTABLE TO OVERSTATED DEDUCTION.—(1) IN GENERAL.—Section 6662(b) is amended by inserting after paragraph (8) the following:
(9) Any overstatement of the deduction provided in section 170(p). (2) INCREASED PENALTY.—Section 6662 is amended by adding at the end the following new subsection:
(l) INCREASE IN PENALTY IN CASE OF OVERSTATEMENT OF QUALIFIED CHARITABLE CONTRIBUTIONS.—In the case of any portion of an underpayment which is attributable to one or more overstatements of the deduction provided in section 170(p), subsection (a) shall be applied with respect to such portion by substituting '50 percent' for '20 percent'.
(3) EXCEPTION TO APPROVAL OF ASSESSMENT.—Section 6751(b)(2)(A) is amended by striking 'or 6655' and inserting '6655, or 6662 (but only with respect to an addition to tax by reason of subsection (b)(9) thereof).
(b) CONFORMING AMENDMENTS.—
(1) Section 63(b) is amended by striking ''and'' at the end of paragraph (2), by striking the period at the end of paragraph (3) and inserting '', and'', and by adding at the end the following new paragraph:
(4) the deduction provided in section 170(p).
(2) Section 63(d) is amended by adding ''and'' at the end of paragraph (1), by striking paragraphs (2) and (3), and by inserting after paragraph (1) the following new paragraph:
(2) any deduction referred to in any paragraph of subsection (b).
(c) REPEAL OF SUPERSEDED PROVISIONS.— (1) IN GENERAL.—Section 62(a) is amended by striking paragraph (22). (2) CONFORMING AMENDMENT.—Section 62 is amended by striking subsection (f).
(d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2020.
SEC. 213. MODIFICATION OF LIMITATIONS ON CHARITABLE CONTRIBUTIONS.
(a) IN GENERAL.—Subsections (a)(3)(A)(i) and (b) of section 2205 of the CARES Act are each amended by inserting 'or 2021' after '2020'.
(b) CONFORMING AMENDMENT.—The heading of section 2205 of the CARES Act is amended by striking 'MODIFICATION OF LIMITATIONS ON CHARITABLE CONTRIBUTIONS DURING 2020'' and inserting ''TEMPORARY MODIFICATION OF LIMITATIONS ON CHARITABLE CONTRIBUTIONS''.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to contributions made after December 31, 2020.
Applicable Federal Rate of 0.6% for January -- Rev. Rul. 2021-1; 2021-2 IRB 1 (16 December 2020)
The IRS has announced the Applicable Federal Rate (AFR) for January of 2021. The AFR under Section 7520 for the month of January is 0.6%. The rates for December of 0.6% or November of 0.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.
Published December 25, 2020
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