As expected, the COVID Relief Bill was signed into law just before the end of 2020. The $900 billion bill was embedded in the much larger Consolidated Appropriations Act of 2021.
Here are some key provisions applicable to Wisconsin families and health care:
- $600 base stimulus check for each taxpayer and each child they can claim a child tax credit. The amount is phased out by $5 for every $100 that adjusted gross income (AGI) exceeds an applicable threshold. The AGI threshold is $75,000 for single, $150,000 for joint and $112,500 for head of household filers. AGI is based on the lesser of your 2019 or 2020 tax return. If your 2020 AGI is lower, you’ll receive a tax credit on your 2020 tax return equal to the stimulus difference you should have received.
- The paycheck protection program (PPP) is back and enhanced. Originally, expenses paid with PPP loans were not deductible business expenses. This has been fixed. Expenses paid by the original PPP or by the new PPP loans (PPP2), are deductible business expenses, even if the loan is forgiven. Applying for PPP2 loans has more stringent qualifications than the original. Notably, the business must have experienced a drop in revenue of more than 25% in any quarter in 2020 as compared to the same quarter in 2019. However, businesses that haven’t utilized the original PPP can still apply under the original loan standards before applying for PPP2. Finally, for both PPP and PPP2, there are four additional categories of permitted expenditures: covered operating expenditures, covered property damage costs, covered supplier costs and covered worker protection expenditures (which includes expenses associated with sanitation, social distancing or any other worker or customer safety requirement related to COVID-19). This means PPE is an eligible expenditure which could be paid by a forgivable PPP loan.
- The employee retention credit is expanded and extended. First, health care expenses are now eligible to be treated as wages. Next, small employers are now defined as having up to 500 employees. The credit is changed from $10,000 per employee per year to $10,000 per employee per quarter. The credit rate is increased from 50% to 70%. In other words, an employee paid $10,000 quarterly would generate a refundable $7,000 tax credit for the employer. Finally, qualifying for the credit is now easier with a year-over-year quarterly revenue reduction of 20% instead of the original 50%.
- Unemployment benefits are extended another 11 weeks.
- The medical expense itemized deduction AGI hurdle is permanently reduced to 7.5% for everyone. Previously, it was 10% of AGI for some taxpayers.
- The Tuition and Related Expenses tax deduction is eliminated for 2021 and beyond. However, the Lifetime Learning Credit income limits are increased to match the American Opportunity Tax Credit income limit. Depending on your particular tax situation, this may provide additional tax relief.
- In 2020, an above the line $300 deduction for charitable gifts applied to single and joint tax filers. This provision is extended through 2021 and the marriage penalty is removed. Joint tax filers can claim a $600 deduction this year while they could only claim $300 in 2020.
- Certain business meal expenses are deductible at 100% for 2021-2022 to encourage spending at restaurants. Previously this limit was 50%.
- Employer payments of student loans is extended through 2025. An employer can provide up to $5,250 of annual tax-free education assistance to pay the principal or interest on an employee’s student debt. In contrast to a $5,250 raise, a $5,250 payment on an education loan does not incur employment taxes and the payment is tax free to the employee. Note: for business owners looking to help themselves or their dependents, no more than 5% of the total paid for education assistance can be used by those owning more than 5% of the company.
- Flexible spending account balances can be rolled to 2021 and 2022. This includes health FSA and dependent care FSA. However, each employer plan will need to opt into this provision.
There are a couple of notable provisions not included in the final legislation.
- Required minimum distributions for those age 72 or older were waived in 2020. This was not extended for 2021.
- Student loan payments and interest were suspended through January 31, 2021 this past August. This also was not extended.
This is a very brief summary of a more than 5,000 page piece of legislation. Please seek guidance from your professional advisors for additional details and how this impacts you specifically.
Please contact Mark Ziety, CFP®, AIF® at 608.442.3750 with any questions.
Mark Ziety, CFP®, AIF®
WisMed Financial, Inc. part of the Wisconsin Medical Society
Back to top