Stimulus Update: Stimulus checks plus more PPP
Updated: Feb 27
Bridget Sullivan Mermel, CPF(R), CPA and John Scherer CFP(R) talk about how you can get more money with the stimulus money that passed recently.
They cover the $600 stimulus checks, re-opening of PPP, or the Payroll Protection Plan, the new, 2021 version of PPP, and the new tax provisions for 2021.
They specifically cover: How much to expect in stimulus checks Who is eligible for the new PPP loans The extension of unemployment benefits New tax provisions including extension of the $300 "above the line" deduction, expansion of educator expenses, and other tax details. Join them. Get money.
For more information, check out this site: https://www.kitces.com/blog/coronavirus-stimulus-2-omnibus-consolidated-appropriations-act-2021-stimulus-checks/
Stimulus Update: Stimulus Checks Plus More PPP
John: Congress passed a bill just before the end of the new year, 5,593 pages of new tax act and stimulus. What does it mean for you? That's what we're going to talk about here today on Friends Talk Financial Planning.
Hi, I'm John Scherer. I run a financial planning practice in Middleton, Wisconsin.
Bridget: And I'm Bridget Sullivan Mermel, and I have a financial planning practice in Chicago, Illinois.
John, I went to some continuing education, and it was about as exciting as you would imagine about the 5,000 page bill.
John: Did you get a whole copy of it, so you can rest your head on it during the CE?
Bridget: No, this is too big for that.
So I put together some notes and, frankly, I went to a particular website, which we'll talk about at the end. Figuring out exactly what this says, I haven't really heard it in the press too much. And so I'm really grateful that we have this forum, so that we can talk to people about it.
John: I'm looking forward to hearing what you have to say about this, Bridget. I know we talked a little bit before the show about, just some of your notes and, like, this is real life, what goes on in our world.
I know that I've read a lot about the stimulus checks. Is it going to be $600 as $2,000? But there's so much more that goes into this. And of course this is just an overview, right? It's not like these are the final answers.
This is the initial run at things, and it's going to evolve over time. But this is sort of like the hot off the presses. Here's the initial look at things.
Bridget: Right. A lot of times the law is passed, and then other people are implementing the law that is passed. And so sometimes we want to have specific answers to every question that might come into their mind. And that's just not necessarily available right now.
Some specific answers will be available. But then there's this whole patience period. And we had to experience the last round with both the PPP and with unemployment checks, both groups of people had to be patient as everything got sorted out.
And we want to have answers for everything. But again, the letter of the law doesn't necessarily say exactly how is this going to play out, so there can be a give and take here.
John: I think that's a good spot to point out that if people do have questions as they watch our show here, put them in the notes below in the comments. And maybe there are some things that we know, right? And if we know those, we'd love to answer those. And maybe that makes a future episode.
Bridget: Yeah, we like those.
John: Ask them there, and we'll see. Maybe there are things that we know, and certainly it will evolve over time and we'll know more in the coming weeks and months, and we'll be able to share that at that point.
John: What did you learn at your continuing education?
Bridget: So, the first thing is the PPP... No, let's not talk about PPP first. Let's talk about stimulus checks, because I think that's going to affect more people.
John: I like that idea. Let's talk about getting...
Bridget: Yeah, exactly, money! So that's $600 per person. So if you're married filing jointly, that's $1,200 hundred, and then it's $600 for each child under the age of 17. If they're 17 and one day: no. If they're 16 and 364 days: yes. Okay.
And it's based on your 2020... Excuse me! It's based on your 2019 tax return.
John: Because we don't have 20's yet, right? So it's based on last year, meaning two years ago.
Bridget: If you don't finally return because you're not required to, you're still eligible for a check, similar to the last round. So in the last round, if you were... There's plenty of people who don't have to file tax returns, and they don't. Because if you don't have any taxable income and you owe zero tax, you're not actually required to file.
So those people, they can still get a check. But they have to find out how to get a check, and I don't have those details with me right now. But again, if you're listening and you're interested and that applies to you, write us the comment, and we'll look it up for you.
Okay, so it's based on your 2019 tax return. It's based on your adjusted gross income. So that's after your 401K contributions or your IRA contributions, and then the phase out starts if you make $75,000 a year if you're single, and again that's after 401K contributions, or $150,000 if you're married filing jointly.
John: And that's after 401K contributions, but it doesn't include your standard deductions or exemptions and those things, right? So it's income less 401K is the one big one, maybe health insurance is the other big one that would count.
Bridget: Yeah, health insurance if you're self-employed.
Bridget: Health insurance, if you're not self-employed, it's not going to work. Yeah.
John: What about getting these, I know this is a lot to talk about it, for people that need the money? Are these things being sent out now? I know I've read a little bit about different things. Did they cover that at all?
Bridget: They didn't cover that. Last time, it was if they had your direct deposit information, it got directly deposited. If they didn't then they send out a check.
Bridget: I think it's the safe assumption to think it's going to be the same thing again.
John: Breaking things that just literally went within the last 10 days, this has come out, right? So who knows? The details aren't there?
Bridget: Next thing, small businesses, if you didn't get a PPP loan and you regret that Payroll Protection Act...
John: Plan, I think, yeah.
Bridget: ...and you regret that it's going to reopen. So if you didn't get an original PPP loan, and that's going to reopen, and it's a program that helps small businesses that were affected by coronavirus.
You don't have to prove that it reduced your income, but you have to say that it did affect your business. And it's based on how much payroll that you have, or if you're self-employed, it's based on your self-employment income.
Okay, so the original program is going to reopen. And then there's going to be what they call PPP 2, the sequel. And that's going to have more stringent requirements, although still open, I think, to the businesses that need it the most. So you have to have less than 300 employees...
John: and that's down from 500 in the original. It was 500 last time, now it's 300.
Bridget: Right. And your revenue has to be down by at least 25% in 2020 versus 2019 for 1 quarter. So...
John: Second quarter 2019, compare that to second quarter 2020? If there's a 25% loss, I qualify for that...
Bridget: the revenue going down.
John: Yeah, revenue, my top line, my sales, if you will, okay.
Bridget: Thanks for the jargon alert.
John: Yeah. Jargon alert, gotcha!
Bridget: So your revenue, if your revenue is down for one quarter, then you're eligible. The loan is two and a half times your monthly payroll, and if you work in the food service industry, it's three and a half times your monthly payroll. The maximum amount that you can get is $2,000,000, that's versus $10,000,000 for the last round, for the original PPP.
John: I think this is a really big deal for those small businesses, just to circle back so I get it, if you didn't get PPP last time, maybe, I know there's some folks that for various reasons thought they shouldn't do it, you can go back and say "You know what? I wish I would have, because my business wasn't affected in first quarter, but it was at the end of the year. Those sorts of things.
John: And even if I got it, and I say, "Listen, the major change is now a little bit less employees than it was last time around." I've got... the big one is #2. I've got to show that I had a loss quarter over quarter, year vs. year
Bridget: of revenue.
John: of revenue. Right. Yeah. I say loss, but I had less sales in one quarter than I did the other quarter, in the previous, in 2019. And then there's a smaller cap on it, right? Instead of $10,000,000, it's $2,000,000.
John: Those are the big differences.
Bridget: Yeah. Although, if you've got a restaurant, you can get more money than you could.
John: Yeah. And again, to me that makes sense, right? Those are the places where there's a little bit more focus maybe than was in the original PPP. The PPP 2 is trying to narrow down some of the eligibility.
Bridget: But I still think that there will be a lot of businesses that will benefit from it.
Bridget: Unemployment benefits. So this is partly just kind of keeping the money flowing of regular unemployment benefits. But often during a recession the federal government extends how long people can apply for unemployment. Usually it's something like 26 weeks, and they give them another 11 weeks, and I believe that's what's happening this time. And they also extended unemployment benefits for self-employed people, which, again, is something they did similarly to the last round.
Now when I was looking at it before, if I had my druthers, I would go PPP for people who are self-employed, versus trying to get unemployment benefits. Partly is, it was just a lot easier, at least in Illinois. The Illinois employment IDES, which is the agency that handles unemployment, seemed to be just overwhelmed. And everybody... If you can't get through, then you're calling five times. So then that really overwhelmed them. So, they seemed to be really overwhelmed.
And the PPP, you had to wait and figure it out. But then once you got it going, it seemed to be a good program. And I don't believe, and I'm not positive about this, that you can do both if you were a small business. Period.
John: As a self-employed person in the past, meaning going back before 2019, there was no unemployment for self-employed people. It didn't happen.
So one of the key takeaways I hear is, unemployment with the CARES act back in the spring, and now the new act here, is that self- employed people do qualify, and then you have to take a look and figure out what's the best thing for your situation. But at least it's on the table for you as a self-employed person. Right?
Bridget: Exactly. And there's more factors involved, like the pragmatic ability to actually get the money is a factor.
John: Yeah. Right.
Bridget: Okay. And then we have the last group of changes... and the other thing, back to the unemployment, is that I know that a lot of people benefited from the extra $600 of unemployment last time, and that's coming back. But this time it's $300 for 11 weeks, so that's the $3,300 extra. And so that's on top of whatever unemployment your state usually pays.
John: Got it.
Bridget: Okay. And then miscellaneous changes. Medical expenses are permanently deductible. If they're 7.5% of your adjusted gross income. The above-the-line charitable contribution of $300 per person, so $600 if you're married filing jointly, is in place for 2021. It was in place, or they just came up with it for 2020. Now it's extended to 2021 as well.
John: If I remember right on that one, Bridget, where last year it was $300 per tax return, basically, this coming year it'll be $300, if you're married, you can double it. Or am I thinking of something else?
Bridget: You know, it's that not clear. I'm glad you said that, because I thought it was $300 per tax return. But it is actually $300 per individual, so it's $600 a tax return.
I found that out in the class, during the class on December 30th, and emailed one particular client who might have cared. Yeah. So I think there was a misconception about that. It certainly wasn't clear to me that it's actually per person $300 a person, not... Married filing jointly is $600.
Bridget: And then the next thing is small businesses' meal expenses. So I've never experienced this in my text lifetime. Meal expenses are 100% deductible. So again, this is trying to encourage going to restaurants, if eaten at restaurants. I don't know what that means, but meal expenses are 100% deductible for 2021 instead of 50% deductible. Entertainment expenses are still not deductible. But nobody's... Entertainment has taken a big hit anyway, because of COVID. So, meal expense is 100% deductible.
And then, and this is just trying to kind of tidy things up. If you got PPP money, it isn't counted as income. And the expenses that you used to justify forgiveness are deductible. So this is the accountant's panties in the bundle provision because accountants don't like this, because it's not...
John: Getting the run bundle, this provision.
Bridget: It doesn't work from an accounting standpoint, but the tax.. they decided to do it. We'll just figure that out, how to handle the accounting. And then educator expenses. So if somehow you're an educator and you don't use the entire $250 allotment that you have a a deduction on regular school supplies, you can also spend it on PPE, or personal protection equipment.
And last but not least, there's no RMD waiver. So required minimum distributions, you still need to make them. If you're over the required minimum distribution age, which has gotten raised to 72, but it's either 70 ½ or 72.
John: That's a big one.
Bridget: Depending on exactly when you became that age.
John: Yeah, that's a big one this year. It's like a change to the change, right? And the CARES act in the spring had changed it and said, "Listen, you don't have to take your minimum distributions from your IRA-based money." And then the new update says, "No, that was just a one year thing." Going next to this year in 2021 RMD's are back on the table. You have to do those things this year, right? That's the deal.
Bridget: Yeah. So this has been a lot, and we're going longer than we usually like to, so I think it's a good time to wrap it up and just encourage people (a) to subscribe, and (b) put in comments if you've got questions, and we'll expand upon what we're going through.
Bridget: Also, we'd like to talk about ACP, which is an organization both John and I are proud members of, or the Alliance of Comprehensive Planners. It's a not-for-profit group of planners that are tax-focused and use the same philosophy that John and I use when we are doing planning, and you can check those out at acplanners.org.
John: That's great. Thanks so much for this breakdown, Bridget. I'm sure there's going to be more coming out on this in the next weeks and look forward to responding to comments and talking to you again about it.
So until next time!
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.