$2 Trillion Relief Package Signed Into Law

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$2 Trillion Relief Package Signed Into Law

Mar 28, 2020

by Gregory S. Dowell

March 28, 2020

President Trump signed into law the $2 trillion relief package designed to help businesses and individuals in the U.S. make it through the COVID-19 pandemic. Never has there been a larger economic rescue package in our nation’s history.

One of the key elements for individuals is the one-time issuance of stimulus checks, up to a maximum $1,200 per taxpayer and $500 per child, under the age of 17. To qualify, an individual must be a legal resident and not be claimed as a dependent. Qualification is further subjected to an earnings test, with phase outs for single taxpayers with adjusted gross income above $75,000, married couples filing jointly with AGI over $150,000, and heads of household with AGI above $112,500. The IRS will be charged with making these determinations, based on 2019 income taxes or, if the 2019 returns are not yet filed, the 2018 tax return. Some seniors and disabled individuals who don’t need to file income tax returns will also be eligible; in those cases, the IRS will look to the Social Security Administration’s records. Like it or not, the law appears to allow for the system to be “gamed”. The credits are actually an advance on a 2020 tax credit; a credit will be calculated on the 2020 return using the 2019 data, reduced by the advance payment received. Those who hold off filing a 2019 return because their 2018 return would give them a bigger benefit would seem to stand to benefit, as there is no provision in the law forcing them to pay back any such overpayment when they file their 2020 tax returns.

The Treasury Secretary and the IRS have committed to paying the stimulus checks as soon as possible. Those taxpayers who have had refund checks direct-deposited in the past will potentially get their funds in about 3 weeks. Paper checks will be mailed and will lag.

Unemployment benefits will be expanded as well. Federal funds will be added to the State unemployment payments that are being made. Federal funds will be paid in the amount of $600 per week for up to 4 months. On top of that, the regular State unemployment benefits that normally are paid over 26 weeks will be extended an additional 13 weeks.

So when will your stimulus money come? If you’ve used a bank account for direct payments to or refunds from the IRS, your money will be direct-deposited. On Thursday, Treasury Secretary Steven Mnuchin said on CNBC that direct deposits could go out within three weeks. Individuals who don’t have a bank account on file with the IRS will be sent checks in the mail, according to their most recent address on file. That’s likely to take longer. Self-employed individuals, who normally do not qualify for unemployment insurance, will be able to apply. The typical 7-day waiting period the precedes the first unemployment check will also be waived, in an effort to get checks to individuals more quickly.

In an expansion of the Families First Coronavirus Response Act signed by President Trump on March 18th, the new law also addresses sick leave. In businesses with fewer than 500 employees, the law allows up to 12 weeks of family leave (with the first two weeks unpaid) if employees stay home with children whose schools and day care centers have closed because of the pandemic. Workers who were laid off by March 1st but rehired by December 31st will be eligible to the family leave. The family leave pay is calculated at 2/3 of normal pay, capped at $200 per day and an aggregate of $10,000 per worker and a maximum of $1,000 per week. Employers are expected to issue the checks and then get reimbursed by the government.

Employees will also be entitled to 80 hours of paid sick leave at their regular rate of pay. The law caps the pay at $511 on a daily basis, and an aggregate of $5,110 per worker. Part-time workers are also eligible. Eligible workers include those who have been unable to work due to quarantine. Those forced to stay out of work to care for someone with COVID-19 or who has a child whose school or daycare has closed due to the virus are eligible for 2/3 of their normal pay, with a maximum of $200 per day, and an aggregate of $2,000 per worker.

Retirement plans cap eligible loans at $50,000, and that cap has been raised to $100,000. Further, the limitation that loans may not exceed 50% of the 401(k) vested balance has also been waived. The 10% penalty on early withdrawals has been waived on coronavirus-related distributions of up to $100,000, and the amount so withdrawn may be re-contributed to the plan within 3 years. If not re-contributed, the withdrawn amount will be taxed over a 3-year period at ordinary income tax rates. Required minimum distributions for those over age 72 from retirement accounts have also been waived for 2020.

Mortgage relief is also offered. Fannie Mae and Freddie Mac will allow 6 months of deferral and no foreclosures or evictions can take place. Outside of this new law, other banks have also committed to be lenient during the pandemic. Renters gain more protection if they live in buildings that are backed by federal loans.

Relief from student loan payments were also expanded under the stimulus package. Interest will not accrue on federal student loans from April 1st to September 30th, and no payments will be required during that time. However, the Department of Education will treat the loans as if payments were made during this period, thereby reducing student loan debt. Temporarily, private collection agencies will no longer pursue defaulted borrowers.

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Getting Married? What a Perfect Time to Talk About Taxes!

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by Gregory S. Dowell Updated May 16, 2023 Spring is the traditional kick-off to wedding season, and thoughts quickly turn to the wedding venue, gifts, the happy couple, and, of course, the guest list. Lurking somewhere in the shadows, behind even that strange uncle you barely know, is another guest that needs to be considered: The tax impact on the newlyweds. To start, newlyweds will have two options for filing their income taxes in the year of marriage: Filing status can either be married filing jointly, or married filing separately. In the vast majority of cases, a couple will benefit with a lower overall tax burden to the couple by choosing to file married filing jointly. One of the classic cases where a couple may consider filing separately is when one spouse has significant amounts of medical expenses for the year. Medical expenses are only deductible if they exceed 7.5% of adjusted gross income; using only one spouse's income may allow a deduction to be taken if filing separately, compared to losing the medical deduction entirely if both incomes are combined by filing jointly. We previously had written about the tax trap that often occurs when two people get married, resulting often in an unanticipated balance due when the first joint tax return for the couple was filed. While President Trump’s Tax Cuts and Jobs Act (TCJA), changed the dynamics somewhat, it is still worthwhile to put pen to paper before saying “I do”. Prospective spouses have the opportunity to save money by taking income tax considerations into account before tying the knot. That’s particularly true for those who plan to marry late this year or early next year. As this article explains, from the federal income tax standpoint, some individuals marrying next year may come out ahead by either deferring or accelerating income, depending on their circumstances. Others may find it to their advantage to defer a year-end marriage until next year. For some quick background, a “marriage penalty” exists whenever the tax on a couple’s joint return is more than the combined taxes each spouse would pay if they weren’t married and each filed a single or head of household income tax return. Before President Trump’s TCJA, only the 10% and 15% married filing jointly brackets were set at twice that of the singles bracket, and so the marriage penalty effect on joint filers applied in the brackets above the 15% bracket. Beginning with the 2018 tax year, however, the TCJA set the statutory tax brackets for marrieds filing jointly-through the 32% bracket-at twice the amount of the corresponding tax brackets for singles. As a result, the TCJA eliminated any tax-bracket-generated marriage penalty effect for joint filers where each spouse has roughly the same amount of taxable income-through the 32% bracket. For example, if two individuals who each have $215,950 of taxable income file as single taxpayers for 2022, each would have a tax bill of $49,335.50, for a combined total of $98,671. If they were married, their tax bill as marrieds filing jointly would be $98,671, exactly the same amount as the combined total tax they’d pay as single taxpayers. Because the 35% bracket for marrieds filing jointly isn’t twice the amount of the singles 35% bracket, the marriage penalty effect will still apply to joint filers whose income falls in the 35% bracket. Using 2022 tax tables, two single taxpayers may each have $500,000 in taxable income, for a combined total of $1,000,000, without having any of it taxed higher than 35%. However, for marrieds filing jointly, the 35% tax bracket ends at $647,850 in taxable income, and each additional dollar of taxable income taxed at 37%. Thus, where two high-earning unmarried taxpayers with substantially equal amounts of taxable income are planning for their marriage to take place either late this year or early next, it may pay from the tax viewpoint to defer the marriage until next year. As an example, if two individuals each have $539,900 of taxable income file as single taxpayers for 2023, each would have a tax bill of $162,718, for a combined total of $325,436. If they were married before the end of the year, their tax bill as marrieds filing jointly would be $334,076, or $8,640 more than the combined total tax they’d pay as single taxpayers. If only one of the prospective spouses has substantial income, marriage and the filing of a joint return may save taxes, thus resulting in a marriage bonus. The bonus is the result of two factors: 1) the tax brackets for marrieds filing jointly cover wider spans of income than the tax brackets for taxpayers as singles; and 2) the taxable income of the lower-earning individual may not push the couple’s combined income into a higher tax bracket. In such a case, it will probably be better from the tax standpoint to accelerate the marriage into this year if feasible. There are a number of other factors that should also be taken into account when determining the effect of a marriage on income taxes of the couple. As mentioned early in this post, the first decision is to verify that filing a joint return is preferred to filing separate returns. In addition, many provisions of the tax code phase out completely (or decrease partially) as adjusted gross income increases. In a perfect world, there would only be good surprises for a newlywed couple following their wedding. To avoid any unpleasant income tax surprises, we always recommend that a newlywed couple take the time to make a projection of what their income will look like when combined as a couple, and determine what the tax bill will look like, at the Federal and State levels. After all, planning ahead, communicating with each other, discussing finances, and avoiding unpleasant surprises are some of the keys to a long marriage.