The Latest Stimulus: What Does $900 Billion Buy?
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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now“You get a car! And you get a car! Everybody gets a car!”
This famous moment occurred in 2004 when Oprah surprised everyone in her audience with a new car. The stimulus package that was passed last Spring felt like an Oprah moment. $200 billion here, $200 billion there, everyone gets a billion.
In the beginning stages of the pandemic, with many unanswered questions, both health-wise and economically, Washington was desperate to flood the economic system with money and keep individuals and businesses afloat. The stimulus passed this past Spring was very broad. In the short-run, the stimulus was a success. Bankruptcies for individuals and corporations have been less than expected. Our banking system still appears to be in strong condition, and lending is healthy. In the long run, the impact of adding a couple trillion dollars to our debt could become an issue. But for now, the positive impact from the previous stimulus has encouraged another package.
Why Another Stimulus package?
With the pandemic still in high gear and the improvement in unemployment appearing to slow, this past week, Washington passed another stimulus package with a price tag of $900 billion. The reasoning behind the additional economic boost is to “bridge the gap.” Front-line healthcare workers and highest risk individuals will be receiving vaccines soon. The rest of us are likely to have access to a vaccine by the end of Spring when the economy can have fewer headwinds and start to benefit from the pent-up demand growing.
Who Benefits?
Rather than the Oprah approach, Congress seems to be a little more selective with business and industries. Individuals will still be receiving a direct payment. The following points are based on early interpretations of the stimulus package and could change. (This is not tax advice.)
Individuals
Checks for individuals will be in the mail or directly deposited into bank accounts—$ 600 per person, and each child under 17. Dependent adult children or children, age 17, do not get a benefit. This should now be known as the Harry Potter exception, because 17 is the age of adulthood for young witches and wizards.
If your adjusted gross income in 2019 was above $75,000 for singles or $150,000 for joint filers, then your benefit will be reduced. However, the reduction has nothing to do with your income in 2020. If your income takes you above these thresholds in 2020, you get to keep it all (Denitsa Tsekova, Yahoo! Money). If your income was higher in 2019 but came down in 2020, you won’t get a check now, but you will get an added benefit when you file your 2020 tax return.
Also included is the unemployment benefits extension of $300 per week. This federal benefit is in addition to any state unemployment benefits being received. For those still without a job, this income will help individuals pay bills.
Businesses
For businesses, the Paycheck Protection Program loan received earlier this year is not taxable. Many businesses qualified for loans and used them to cover payroll during this uncertain time. Upon meeting certain requirements, the loans were forgiven, but the loans could have been taxable until this legislation declared them non-taxable.
Targeted Industries
Additional PPP loans will be made available to businesses and, in particular, to movie theaters, live venues, and museums.
Money is being targeted to public transit, child-care centers, airlines, Amtrak, schools, and farmers. Many of these industries are seeing a drop in demand and a higher cost of providing their services. If these economic changes are temporary, the added loans could keep the industries in better shape until demand picks back up.
Business Meals are Deductible
In October, the IRS clarified that business meals could be deductible up to 50%. With this latest stimulus package, meals can be fully deductible. Three-martini lunches will still be out of style, but now they will be fully deductible.
Now What?
For individuals that qualify for a stimulus check, the money should arrive shortly. In the meantime, don’t fall for any stimulus scams. If you have questions, ask a trusted resource. Don’t assume that anyone that emails you or takes the time to text you is a trusted party. For businesses, be sure to stay up to date with the changes affecting your industry. The latest stimulus might offer something new for you and you won’t want to miss any benefits that could be coming your way.
Finally, don’t let your children turn 17 years old. Keep them at age 16 at least until the check arrives!
Bill Wendling is a Senior Portfolio Manager with Bedel Financial Consulting Inc., a wealth management firm located in Indianapolis. For more information, visit their website at www.bedelfinancial.com or email Bill at bwendling@bedelfinancial.com.