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OK, buckle your seatbelts, because this is about to be a wild ride!
The Senate has officially passed a $2 trillion relief package, which is actually $6 trillion when you count the loans, etc.).
Time to dissect this ‘puppy’…
OK, buckle your seatbelts, because this is about to be a wild ride!
The Senate has officially passed a $2 trillion relief package, which is actually $6 trillion when you count the loans, etc.).
Time to dissect this ‘puppy’…
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First, a few comments about the bill, in general, starting with the page count.
The "Final" bill comes in at a whopping 883 pages, which is roughly 3 times longer than the bill Senate Majority Leader McConnel introduced last week
First, a few comments about the bill, in general, starting with the page count.
The "Final" bill comes in at a whopping 883 pages, which is roughly 3 times longer than the bill Senate Majority Leader McConnel introduced last week
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Now, let's talk about the bill in terms of dollars and cents. The main portions of the bill are estimated to cost about $2 Trillion.
To put that into perspective, it's about 10% of the entire US GDP, and could also buy every single #BTC in the world... about 15 times...
Now, let's talk about the bill in terms of dollars and cents. The main portions of the bill are estimated to cost about $2 Trillion.
To put that into perspective, it's about 10% of the entire US GDP, and could also buy every single #BTC in the world... about 15 times...
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Ok.. enough of the big picture stuff, let's get to the good stuff. And there's no better place to start than the question everyone wants to know the answer to...
"How much money is Uncle Sam going to be sending me?"
The answer, of course, is it depends...
Ok.. enough of the big picture stuff, let's get to the good stuff. And there's no better place to start than the question everyone wants to know the answer to...
"How much money is Uncle Sam going to be sending me?"
The answer, of course, is it depends...
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In general, individuals will be entitled to receive a $1,200 amount, while joint filers will receive $2,400
In addition, taxpayers will receive $500 for each qualifying child, using the provisions that apply to the Child Tax Credit... so basically, under 16 or under.
BUT...
In general, individuals will be entitled to receive a $1,200 amount, while joint filers will receive $2,400
In addition, taxpayers will receive $500 for each qualifying child, using the provisions that apply to the Child Tax Credit... so basically, under 16 or under.
BUT...
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High-income taxpayers will have those rebate amounts reduced and/or eliminated as income exceeds:
$150k - Joint filers
$112.5k - HOH
$75k - Everyone else
For every $100 over the applicable threshold, you lose $5 of the rebate, until you get nothing...
High-income taxpayers will have those rebate amounts reduced and/or eliminated as income exceeds:
$150k - Joint filers
$112.5k - HOH
$75k - Everyone else
For every $100 over the applicable threshold, you lose $5 of the rebate, until you get nothing...
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Which means that once you hit the following amounts, you get no rebate
Joint filer - $198k
HOH - 136.5K
Everyone else - 99k
...
Which means that once you hit the following amounts, you get no rebate
Joint filer - $198k
HOH - 136.5K
Everyone else - 99k
...
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In what I believe to be a totally asinine way of going about this, the number above are based on the AGI from the 2019 return, or if that return hasn't been filed (which will apply in MANY cases), the 2018 return.
Here's the problem with that...
In what I believe to be a totally asinine way of going about this, the number above are based on the AGI from the 2019 return, or if that return hasn't been filed (which will apply in MANY cases), the 2018 return.
Here's the problem with that...
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There are probably an awful lot of people who did very well in 2018 - or even 2019 - who are now experiencing some significant financial hardship!
Congress should have based this on 2020 income, paid everyone, and settled up on next year's tax return.
There are probably an awful lot of people who did very well in 2018 - or even 2019 - who are now experiencing some significant financial hardship!
Congress should have based this on 2020 income, paid everyone, and settled up on next year's tax return.
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Sound complicated?
It's not. In fact, we ALREADY DO IT for the premium assistance tax credits for healthcare ("Obamacare credits").
Sound complicated?
It's not. In fact, we ALREADY DO IT for the premium assistance tax credits for healthcare ("Obamacare credits").
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That's far from the only potential issue I see with these payments though...
Let's talk about the practical application here. In many instances, they are going to Direct Deposit this payment to the account that was authorized for a 2018 refund!!
That's far from the only potential issue I see with these payments though...
Let's talk about the practical application here. In many instances, they are going to Direct Deposit this payment to the account that was authorized for a 2018 refund!!
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Did it not occur to anyone that people may have closed those accounts?
What, I ask, is going to happen with that money? I'm sure eventually it will all work out and the IRS will ultimately send a check, but time is of the essence for many families!
Did it not occur to anyone that people may have closed those accounts?
What, I ask, is going to happen with that money? I'm sure eventually it will all work out and the IRS will ultimately send a check, but time is of the essence for many families!
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But don't worry, it'll be ok, b/c within 15 days after the payment is sent, the IRS is going to mail you a notice that tells you how much your payment was, and where it was sent... you know... just in case you haven't gotten it yet.
...
But don't worry, b/c...
But don't worry, it'll be ok, b/c within 15 days after the payment is sent, the IRS is going to mail you a notice that tells you how much your payment was, and where it was sent... you know... just in case you haven't gotten it yet.
...
But don't worry, b/c...
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If for whatever reason there's an issue with your payment (like, say, it never arrived), the notice will also include a "phone number for the appropriate point of contact at the Internal Revenue Service" so you report the issue.
Calling the IRS is easy. Ask any CPA🤦♂️
If for whatever reason there's an issue with your payment (like, say, it never arrived), the notice will also include a "phone number for the appropriate point of contact at the Internal Revenue Service" so you report the issue.
Calling the IRS is easy. Ask any CPA🤦♂️
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Now that I've sufficiently excoriated the rebate portion of the bill, let's move on to retirement account provisions.
We'll go in reverse order to the way that they actually appear in the bill and start w/ Section 2203, which waives the RMD requirements for 2020...
Now that I've sufficiently excoriated the rebate portion of the bill, let's move on to retirement account provisions.
We'll go in reverse order to the way that they actually appear in the bill and start w/ Section 2203, which waives the RMD requirements for 2020...
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This relief is broad and applied to:
- IRAs (including SEP and SIMPLE IRAs)
- 401(k) plans
- 403(b) plans
- 457(b) plans
One item to watch out for though is that RMDs are waived FOR 2020, but NOT for RMDs IN 2020...
Meaning those who turned 70 1/2 in 2019 and delayed...
This relief is broad and applied to:
- IRAs (including SEP and SIMPLE IRAs)
- 401(k) plans
- 403(b) plans
- 457(b) plans
One item to watch out for though is that RMDs are waived FOR 2020, but NOT for RMDs IN 2020...
Meaning those who turned 70 1/2 in 2019 and delayed...
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Taking their RMD until 2020 (until as later as 4/1 - NEXT WEEK) still have to do so.
2020 is also disregarded for purposes of the 5-Year Rule that applies when a Non-Designated Beneficiary inherits from a decedent who died before their required beginning date (RBD)...
Taking their RMD until 2020 (until as later as 4/1 - NEXT WEEK) still have to do so.
2020 is also disregarded for purposes of the 5-Year Rule that applies when a Non-Designated Beneficiary inherits from a decedent who died before their required beginning date (RBD)...
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So, in effect, the 5-Year Rule becomes a 6-Year Rule if one of the 5 years included 2020.
Pop Quiz: Does this same change also impact the new 10-Year Rule imposed by the SECURE Act on Non-Eligible Designated Beneficiaries?
So, in effect, the 5-Year Rule becomes a 6-Year Rule if one of the 5 years included 2020.
Pop Quiz: Does this same change also impact the new 10-Year Rule imposed by the SECURE Act on Non-Eligible Designated Beneficiaries?
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The answer is no! It doesn't. If you got that wrong, don't feel bad, so did Congress... at least initially. In an earlier version of the bill it said 2020 was disregarded for purposes of the 10-Year Rule, but it was correctly removed!
Note that this is the first year...
The answer is no! It doesn't. If you got that wrong, don't feel bad, so did Congress... at least initially. In an earlier version of the bill it said 2020 was disregarded for purposes of the 10-Year Rule, but it was correctly removed!
Note that this is the first year...
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that an individual could have died with their beneficiaries subjected to the 10-Year Rule.
Now, recall that the 10-Year Rule does NOT begin until the year after the year of death.
Therefore, 2020 ALREADY doesn't count as 1 of the 10 years for purposes of the10-Year Rule!
that an individual could have died with their beneficiaries subjected to the 10-Year Rule.
Now, recall that the 10-Year Rule does NOT begin until the year after the year of death.
Therefore, 2020 ALREADY doesn't count as 1 of the 10 years for purposes of the10-Year Rule!
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Three other quick comments on this before we move on...
First, after 2020, an individual's RBD is determined as if this 2020 waiver of RMDs never occured
Second, I feel compelled to point out that this provision is a 'gift' for those who are NOT the primary targets of
Three other quick comments on this before we move on...
First, after 2020, an individual's RBD is determined as if this 2020 waiver of RMDs never occured
Second, I feel compelled to point out that this provision is a 'gift' for those who are NOT the primary targets of
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of the relief provided under this bill. Being upset about having to take an RMD that you don't need when your account is down is a very first-class problem to have.
Finally, just as a note for those who remember a similar suspension of RMDs in the past...
of the relief provided under this bill. Being upset about having to take an RMD that you don't need when your account is down is a very first-class problem to have.
Finally, just as a note for those who remember a similar suspension of RMDs in the past...
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This is actually slightly better than that previous relief. Notably, the Worker, Retiree and Employee Recovery Act of 2008 suspended RMDs for 2009.
But RMDs still had to be taken in 2008... the year that they were based on prior year-end high balances.
Not so this time!
This is actually slightly better than that previous relief. Notably, the Worker, Retiree and Employee Recovery Act of 2008 suspended RMDs for 2009.
But RMDs still had to be taken in 2008... the year that they were based on prior year-end high balances.
Not so this time!
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OK, I lied, one more item on the RMD thing.
If you took your "RMD" early this year, well... stinks to be you. There is no mechanism in the law that automatically allows a later rollover of that amount, or allows the once-per-year rollover rule to be usurped.
OK, I lied, one more item on the RMD thing.
If you took your "RMD" early this year, well... stinks to be you. There is no mechanism in the law that automatically allows a later rollover of that amount, or allows the once-per-year rollover rule to be usurped.
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There are some other retirement account-related provisions in the bill as well, which will help people short on cash access retirement fund easier and/or without incurring penalties.
Let's start with the new "Coronavirus-Related Distribution". This is a
There are some other retirement account-related provisions in the bill as well, which will help people short on cash access retirement fund easier and/or without incurring penalties.
Let's start with the new "Coronavirus-Related Distribution". This is a
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new exception to the 10% early distribution penalty, available to certain individuals impacted by the current crisis. Some details:
- The distribution can be from an IRA or a plan
- It can be up to $100k
- It must be taken in 2020
- By default, the income is spread over...
new exception to the 10% early distribution penalty, available to certain individuals impacted by the current crisis. Some details:
- The distribution can be from an IRA or a plan
- It can be up to $100k
- It must be taken in 2020
- By default, the income is spread over...
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... 3 years, unless you proactively elect to include it all in 2020 (note: if times are tough and income has significantly declined, this might actually be a better move)
- To be eligible you must be diagnosed w/ COVID-19, OR have a spouse or dependent similarly diagnosed...
... 3 years, unless you proactively elect to include it all in 2020 (note: if times are tough and income has significantly declined, this might actually be a better move)
- To be eligible you must be diagnosed w/ COVID-19, OR have a spouse or dependent similarly diagnosed...
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...OR experience adverse financial consequences as a result of being quarantined, furloughed, laid off, reduced hours, unable to work b/c of childcare issues, and a handful of other similar reasons. Bottom line... I think the IRS is going to be very lenient on this one...
...OR experience adverse financial consequences as a result of being quarantined, furloughed, laid off, reduced hours, unable to work b/c of childcare issues, and a handful of other similar reasons. Bottom line... I think the IRS is going to be very lenient on this one...
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It's also important to note that beginning on the day after receipt of a "Coronavirus-Related Distribution", an individual has up to 3 years to repay the amount as qualified rollover contributions (in 1 or multiple payments).
Amended return(s) can be filed to claim refunds!
It's also important to note that beginning on the day after receipt of a "Coronavirus-Related Distribution", an individual has up to 3 years to repay the amount as qualified rollover contributions (in 1 or multiple payments).
Amended return(s) can be filed to claim refunds!
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There is also a provision to further expand plan loans.
- The max amount of a plan loan is doubled from 50k to 100k
- The loan may be for up to the present value of the participant's account
- Loan payments due from enactment until 12/31/20 can be delayed for up to 1 year
There is also a provision to further expand plan loans.
- The max amount of a plan loan is doubled from 50k to 100k
- The loan may be for up to the present value of the participant's account
- Loan payments due from enactment until 12/31/20 can be delayed for up to 1 year
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As much as I love retirement accounts (and I do.. I'm looking at you @AshleyElisaG), it's time to move on...
Let's talk about supporting worthy causes by giving to charity!
The bill includes a brand new above-the-line deduction for certain taxpayers...
As much as I love retirement accounts (and I do.. I'm looking at you @AshleyElisaG), it's time to move on...
Let's talk about supporting worthy causes by giving to charity!
The bill includes a brand new above-the-line deduction for certain taxpayers...
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who make charitable contributions of up to $300!
This may not be a huge dollar amount, but it has the potential to impact a HUGE number of taxpayers.
Notably, the TCJA roughly doubled the standard deduction (while also eliminated personal exemption deductions, I know)...
who make charitable contributions of up to $300!
This may not be a huge dollar amount, but it has the potential to impact a HUGE number of taxpayers.
Notably, the TCJA roughly doubled the standard deduction (while also eliminated personal exemption deductions, I know)...
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Resulting in a dramatic decrease in the number of taxpayers who file their Federal returns using itemized deductions. More specifically, about 30% of filers itemized pre-TCJA, and now it's about 10%.
That's important, b/c if you don't itemize...
Resulting in a dramatic decrease in the number of taxpayers who file their Federal returns using itemized deductions. More specifically, about 30% of filers itemized pre-TCJA, and now it's about 10%.
That's important, b/c if you don't itemize...
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You don't get a benefit for contributing to charity! At least that used to be the case. Now, taxpayers who don't itemize their federal return will be able to deduct up to $300 as an above-the-line deduction, effective for 2020.
Some more specifics on this one...
You don't get a benefit for contributing to charity! At least that used to be the case. Now, taxpayers who don't itemize their federal return will be able to deduct up to $300 as an above-the-line deduction, effective for 2020.
Some more specifics on this one...
- The contribution has to be in cash (so no giving away $300 of highly appreciated securities)
- Contribution CANNOT be used to fund a donor-advised fund or a 509(a)(3) "supporting organization"
- The provision is permanent... in as much as tax law can be
- Contribution CANNOT be used to fund a donor-advised fund or a 509(a)(3) "supporting organization"
- The provision is permanent... in as much as tax law can be
One last thing to note here...
This deduction is going to be available for what the law refers to as a "Qualified Charitable Contribution".
Can't wait to see the confusion between that and Qualified Charitable Distributions (IRA-to-Charity distributions available for 70 1/2+)
This deduction is going to be available for what the law refers to as a "Qualified Charitable Contribution".
Can't wait to see the confusion between that and Qualified Charitable Distributions (IRA-to-Charity distributions available for 70 1/2+)
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Ugh... forgot to number the last two tweets. But this is 36, which I think may actually be equal to the SECURE Act thread.
I digress.
Anyway, there's another provision that allows 2020 charitable contributions made in cash to qualifying charities to equal 100% of AGI.
Ugh... forgot to number the last two tweets. But this is 36, which I think may actually be equal to the SECURE Act thread.
I digress.
Anyway, there's another provision that allows 2020 charitable contributions made in cash to qualifying charities to equal 100% of AGI.
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Normally, that's limited to 60% of AGI (50% pre-TCJA). Any amounts contributed in excess of this amount can be carried forward for up to 5 years.
Normally, that's limited to 60% of AGI (50% pre-TCJA). Any amounts contributed in excess of this amount can be carried forward for up to 5 years.
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Switching gears again... let's talk about education. Lots of good stuff in here for individuals w/ student loans.
We'll start with the broadest relief...
Loan payments are suspended for Federal loans through 9/30/2020. During this time, no interest will accrue...
Switching gears again... let's talk about education. Lots of good stuff in here for individuals w/ student loans.
We'll start with the broadest relief...
Loan payments are suspended for Federal loans through 9/30/2020. During this time, no interest will accrue...
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... And involuntary collections will also be suspended.
One last item on this, which is VERY important for those working for nonprofits or other organizations for which student loan forgiveness may be available. Suspended months COUNT towards the loan forgiveness programs!
... And involuntary collections will also be suspended.
One last item on this, which is VERY important for those working for nonprofits or other organizations for which student loan forgiveness may be available. Suspended months COUNT towards the loan forgiveness programs!
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Other education-related stuff includes:
- Excludes this semester from lifetime limit on subsidized loans or Pell grants if students drop the semester due to COVID19
- For 2020 ONLY, employers can pay up to $5,250 of an employee's student debt w/out inclusion in EE's income
Other education-related stuff includes:
- Excludes this semester from lifetime limit on subsidized loans or Pell grants if students drop the semester due to COVID19
- For 2020 ONLY, employers can pay up to $5,250 of an employee's student debt w/out inclusion in EE's income
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Switching gears, yet again, to healthcare...
I'm tackling the stuff that impacts individuals/families here, not the broader healthcare system stuff. For that, I'd suggest checking out @CarolynMcC's feed. I'm sure she'll have plenty to say about this.
Ok, back to work...
Switching gears, yet again, to healthcare...
I'm tackling the stuff that impacts individuals/families here, not the broader healthcare system stuff. For that, I'd suggest checking out @CarolynMcC's feed. I'm sure she'll have plenty to say about this.
Ok, back to work...
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- COVID19 tests must be covered by your insurance, as must a vaccine (once we have one, of course🙏). Also worth pointing out here is that both of these should be covered by HSA-eligible HDHPs without cost-sharing, even if you haven't yet met your deductible.
Separately...
- COVID19 tests must be covered by your insurance, as must a vaccine (once we have one, of course🙏). Also worth pointing out here is that both of these should be covered by HSA-eligible HDHPs without cost-sharing, even if you haven't yet met your deductible.
Separately...
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There is an expansion of the definition of qualified medical expenses for purposes of HSAs, Archer MSAs (do people still have these?) and Healthcare FSAs. Such expenses will now include certain feminine healthcare products.
There is an expansion of the definition of qualified medical expenses for purposes of HSAs, Archer MSAs (do people still have these?) and Healthcare FSAs. Such expenses will now include certain feminine healthcare products.
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And finally, let's talk about some relief for businesses and business owners...
First, there is a new "Employee Retention Credit"
To qualify, a biz must:
- Have existed in 2020 (duh?)
- Have had the ops fully or partially suspended due to...
And finally, let's talk about some relief for businesses and business owners...
First, there is a new "Employee Retention Credit"
To qualify, a biz must:
- Have existed in 2020 (duh?)
- Have had the ops fully or partially suspended due to...
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"orders from an appropriate governmental authority limiting commerce, travel, or group meetings" due to COVID19."
- In addition, the credit is only available if gross rev <50% of gross rev in the same quarter last year.
-Once credit is 'triggered' it remains until...
"orders from an appropriate governmental authority limiting commerce, travel, or group meetings" due to COVID19."
- In addition, the credit is only available if gross rev <50% of gross rev in the same quarter last year.
-Once credit is 'triggered' it remains until...
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...gross rev exceeds 80% of revenue for the same quarter in the prior year.
Now, if that isn't quite complicated enough for you, let's dive in further. IF you're eligible to receive the credit, what's it worth?
...gross rev exceeds 80% of revenue for the same quarter in the prior year.
Now, if that isn't quite complicated enough for you, let's dive in further. IF you're eligible to receive the credit, what's it worth?
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The short answer is that it's worth up to 50% of the qualified wages paid with respect to each employee. And it goes toward employement taxes. The longer answer is, of course, it depends.
Let's talk more about that...
The short answer is that it's worth up to 50% of the qualified wages paid with respect to each employee. And it goes toward employement taxes. The longer answer is, of course, it depends.
Let's talk more about that...
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For all employers, the maximum amount of wages that count toward this formula per employee per quarter is $10,000.
Beyond that, however, there is a distinct split between the way the credit works for "small biz" w/ 100 or fewer employees, and big biz w/ >100 employees...
For all employers, the maximum amount of wages that count toward this formula per employee per quarter is $10,000.
Beyond that, however, there is a distinct split between the way the credit works for "small biz" w/ 100 or fewer employees, and big biz w/ >100 employees...
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For small biz, all wages count towards the credit (up to the max)
For big biz, the credit only applies to wages paid to employees who cant provide services (aren't actually working) due to COVID19.
For small biz, all wages count towards the credit (up to the max)
For big biz, the credit only applies to wages paid to employees who cant provide services (aren't actually working) due to COVID19.
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Worth noting... The credit goes against employment taxes that go to fund things like Medicare & Social Security. Which are already underfunded.
So to make sure they don't take the hit, Congress is making up the difference by paying in that money anyway. How? Magic, I guess
Worth noting... The credit goes against employment taxes that go to fund things like Medicare & Social Security. Which are already underfunded.
So to make sure they don't take the hit, Congress is making up the difference by paying in that money anyway. How? Magic, I guess
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For those businesses that don't qualify for the new Employee Retention Credit, cashflow help is still on the way in the form of deferred employment taxes.
Employment taxes for the period beginning on the date of enactment through the end of the year...
For those businesses that don't qualify for the new Employee Retention Credit, cashflow help is still on the way in the form of deferred employment taxes.
Employment taxes for the period beginning on the date of enactment through the end of the year...
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...can be deferred for quite a while! More specifically, half of the deferred tax will be due 12/31/21, w/ the other half due 12/31/22!
This should provide many businesses with valuable liquidity during these challenging times.
For troubled businesses, at least on paper...
...can be deferred for quite a while! More specifically, half of the deferred tax will be due 12/31/21, w/ the other half due 12/31/22!
This should provide many businesses with valuable liquidity during these challenging times.
For troubled businesses, at least on paper...
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... there is added liquidity help in the form of NOL changes. NOLs from 2018-2020 can be carried back up to FIVE years!
Furthermore, they can FULLY offset income!
... there is added liquidity help in the form of NOL changes. NOLs from 2018-2020 can be carried back up to FIVE years!
Furthermore, they can FULLY offset income!
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OK, that's it for tonight. If you've made it this far, you may realize I haven't touched on the bailouts or unemployment yet. There's a reason for that.
As I've been writing this, rumors are swirling about potential changes, and those are two prime areas where those...
OK, that's it for tonight. If you've made it this far, you may realize I haven't touched on the bailouts or unemployment yet. There's a reason for that.
As I've been writing this, rumors are swirling about potential changes, and those are two prime areas where those...
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...changes may occur. Once they're in 'stone' I'll probably have more to say.
Until then, if you want more on this, my full write-up will be posted to the Nerd's Eye View Blog at kitces.com as soon as possible.
We're also...
...changes may occur. Once they're in 'stone' I'll probably have more to say.
Until then, if you want more on this, my full write-up will be posted to the Nerd's Eye View Blog at kitces.com as soon as possible.
We're also...
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...going to be holding a special webinar on this, date/time to be announced soon.
It's after midnight, and it's been a long day, so if you think I messed something up, please reply and let me know.
Accuracy of info is always #1 priority!
And on that note, TY + goodnight👊
...going to be holding a special webinar on this, date/time to be announced soon.
It's after midnight, and it's been a long day, so if you think I messed something up, please reply and let me know.
Accuracy of info is always #1 priority!
And on that note, TY + goodnight👊
👆Not accurate. I goofed on this one. See👇
