Direct Checks to Individuals
This will be the third round of direct checks, this time for a max amount of $1,400 per adult or eligible child. The income limits have shifted slightly to completely phase out check payments at $80,000 for single filers and $160,000 for couples. The IRS will use your most recent tax return to determine your eligibility. If you received previous stimulus checks, but believe your 2020 income was above the limits, you should consider filing your 2020 taxes after checks have been issued.
Unemployment Benefits
The current additional $300/month unemployment benefit will be extended to Sept 6th and will continue to include gig workers and the self-employed. The new bill also adds a measure making the first $10,200 of unemployment benefits tax-free for households earning less than $150,000. If you have already filed your 2020 taxes and would have qualified for this tax-free portion, you might have to file an amended tax return.
ACA Healthcare Subsidies
For those of you with healthcare coverage through the public exchange this will be an overdue change. Income limits to qualify for federal subsidies have been raised and expanded to include more people in the so-called “Subsidy Gap”. Additionally, premium costs will now be capped at 8.5% of your Modified Adjusted Gross Income. Please contact your WealthPoint Advisor for a detailed assessment of how your healthcare subsidies could be changed.
Changes to Tax Credits for Parents
The Child Tax Credit currently set at $2,000 would increase to $3,000 and $3,600 for children under the age of six. The credit would also be expanded to include 17 year olds. The income phaseout limits remain the same for the first $2,000/child at $400,000 for couples. The income limits on the additional increase are lower at $150,000 for a couple.
It will also make the tax credit fully refundable, meaning that if your income is low enough you could generate a tax refund for the full credit amount. This expended credit would now be able to be paid to families as payments throughout the year rather than a onetime check. This provision is expected to significantly impact low-income families and essentially create a universal child allowance for those who qualify.
These changes are only for 2021, but an effort to make them permanent is expected should Congress remain democratically controlled.
What about the rest of the money?
COVID Testing, Contact Tracing, and Vaccine Roll-out: $123 billion
Assistance to State and Local Governments: $360 billion with $10 billion specifically allocated to infrastructure spending.
Reopening Schools Safely: $130 billion
Plus, assorted grants created for small businesses, transportation agencies, concert and performance venues, and public housing assistance.
What is NOT in this bill?
This bill is lacking some of the features of the March 2020 stimulus bill such as suspension of required minimum distributions or delayed tax deadline. Also some of the more publicized initiatives did not survive being knocked around Congress to make it into the final bill. There is no $15/hr federal minimum wage or student loan forgiveness. Although there was a provision allowing any student loan amount forgiven from January 2021 to January 2026 to be tax free. This could potentially set the stage for student loan forgiveness to come at a later date.
A note on government debt and inflation…
We’ve gotten many questions recently about the long-term ramifications of increased government spending or “printing money” on inflation and the federal deficit. Given the past decade of record-low inflation beneath the Federal Reserves 2% target, Fed Chairman Powell has said that they are willing to “let inflation ride”. Long term inflation expectations remain low, but we continue to evaluate our investment options and client portfolios to preserve purchasing power and counter inflation.
