House Stimulus Bill

House Stimulus Bill

by | Mar 2, 2021 | accounting-tax, Cares Act

On February 27, 2021 the House of Representatives passed their $1.9 trillion stimulus plan. The bill was sent to the Senate and a vote is expected as early as Wednesday, March 3, 2021.

Here are some of the key provisions in the House bill:

Recovery rebates

The House bill provides individuals with a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent for 2021. As with the two recovery rebates enacted in 2020, the IRS will make advance payments, which the Service has been calling economic impact payments. The recovery rebate credit phases out for taxpayers with adjusted gross income (AGI) over $75,000 ($150,000 for married filing jointly) and uses 2019 AGI to determine eligibility unless you have already filed your 2020 return.

Child tax credit

The bill increases the amount of the credit to $3,000 per child ($3,600 for children under 6). The increased credit amount phases out for taxpayers with incomes over $150,000 for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for others.

Child and dependent care credit

The bill makes changes to the Sec. 21 child and dependent care credit, including making it refundable for 2021. The bill also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.

Unemployment Compensation

One item not included was the Durbin/Axne proposal to exempt unemployment compensation benefits received from taxable income. It is unlikely that this proposal will be included by the Senate. However, as mentioned 2 weeks ago, Maryland passed SB496 providing a subtraction from Maryland income for certain unemployment insurance benefits.

If you have/are receiving unemployment benefits for 2020, we strongly recommend that you hold off in filing your 2020 tax returns until the Maryland changes can be implemented in your tax preparation software. If you have already filed your 2020 return, you may need to file an amended tax return to recover any Maryland state and local income tax paid on your benefits.

Student loans affected by the CARES Act

Student loans affected by the CARES Act

by | Jan 3, 2021 | Cares Act

On March 20, 2020 the U.S. Department of Education directed the office of Federal Student Aid to suspend collection of student loan payments. This suspension of collections was extended on August 8, 2020 and again on December 4, 2020 and is expected to expire on January 31, 2021.

Taxpayers may want to make a payment before year-end to take advantage of the student loan interest deduction. The interest likely stopped accruing on your loans at the same time, but if you had interest that was capitalized, then you may still be able to take advantage of it. So, if their original loan was $50,000, but the current amount due is $60,000, then that $10,000 is likely capitalized interest or other deductible amounts. You’d need to look at their particular account to see how a payment will be applied, but for tax purposes a payment to “principal” can be applied to capitalized interest first.

Aa a result, many clients will have only 1/3 the amount of student loan interest deduction that they’ve had in the past. Remember that you’d need to pay enough to hit the $2,500 deduction amount after taking into account what you paid earlier in the year.