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Stimulus Bill Analysis
The New Stimulus Bill
President Biden just signed another stimulus bill, aimed to help those affected by the virus (and to deal with a few other matters found in the 5,593 pages of legislation).
So discerning investors might ask two questions: (1) What’s in it? and (2) What’s in it for me?
What’s in It?
Totaling $1.9 trillion, the American Rescue Plan Act of 2021 features jobless help, child tax credits, stimulus checks, vaccine-distribution money, healthcare subsidies, and aid for struggling restaurants.
A Mountain of Money Is on Its Way
As of March 29, 2021, the IRS and the Department of the Treasury have sent out 127 million checks for $1400 each. And 30 million more checks are on their way. These checks will hit the mailboxes or bank accounts of adults, children, and adult dependents such as college students and elders. Adult dependents didn’t receive checks the last time around, so that’s good news for some college students and elders.
What’s in It for Me?
So who’s scooping up all these checks?
An individual filer who earns $75,000 or less — or joint filers earning $150,000 or less — plus members of their household will receive a check for $1400 each.
Also, those who file as heads of households may earn up to $112,500 and still receive a full payment.
But the money disappears quickly: an individual who earns $80,000 or a couple who earn $160,000 will find their mailboxes empty.
What Income Numbers Does the IRS Use?
The key number is your adjusted gross income. If you’ve already filed your taxes for 2020, the IRS will use that number. If you haven’t filed yet, then your 2019 adjusted gross income will govern.
But the true governing number is your adjusted gross income this year. Thus, if you’ll earn less this year than last, and this year’s total puts you under the limits, you’ll be able to claim missing payments on next year’s tax return.
Adjusting Your Adjusted Gross Income
Some legal ways can help you slide just under the $75,000 and $150,000 limits. You can contribute more to certain tax-favored retirement or health savings accounts and lower your adjusted gross income. Or if you’re thinking of selling stock or other taxable asset at profit this year, you can wait until next year. Then, using this year’s adjusted gross income, you can zero in on that “missing payments” bonanza.
The new stimulus law extends enhanced unemployment benefits through September 6. Thus, those who claim jobless benefits will get $300 each week in addition to the payments they get from the state.
Also, under the new law, some unemployment income now escapes taxation. An individual earning less than $150,000 can shield $10,200 in unemployment benefits. Married couples who both received unemployment can shield $20,400. But the $150,000 limit still applies.
Upping the Child Tax Credit
The child tax credits go up for one year under the new law. Children under 6 — $3600. Between 6 and 17 — $3000. One-half of the credit is available as advance monthly payments the IRS will start sending to families this coming July.
Phaseouts for this benefit begin at $75,000 of single filers, at $112,500 for heads of households, and at $150,000 for joint filers. But phased-out individuals who earn less than $200,000 ($400,000 for married couples) can still claim the customary $2000 child credit.
Health Costs Drop
The cost of health insurance will drop on health exchanges. Under current rules, if you buy health insurance on the federal exchange or on state marketplaces (for two years), your cost is limited to 9.78% of your income. Now that percentage drops to 8.5%. Your costs will thus go down.
An already complex tax code continues to get, as Alice would say, “curiouser and curiouser.” Many rules have changes. Uncertainty swirls around the heads of millions of tax experts and CPAs. The IRS will have to step forward and issue guidance on many of the gray areas.
Of course, all of this takes place while bill drafters on Capitol Hill prepare a slew of suggested tax hikes. Meanwhile, the economy doesn’t know which way to go. Optimistic estimates predict an economy that grows 6.5% this year. If that happens, then IRS coffers will overflow — even though federal spending will far exceed tax receipts. If the good times do roll, tax increasers will be licking their chops.
So now, quite obviously, is a good time to start planning ahead.
Give Me a Call
Although we don’t pretend to be tax experts and although we don’t give out tax advice, we always stand ready to guide you with your investments. Sales of stock or sales of other appreciated assets will affect tax exposure now and in the future. We can certainly help guide you in these decisions on holding or selling various assets.
My cell phone stands ready — 240-401-2355.
Always feel free to call me personally.
Jack Reutemann, Jr. CLU, CFP®