From stimulus checks to taxes and housing relief, financial advisers need to review the major provisions in the $1.9 trillion package that pertains to their clients.
In an interview, Jamie Hopkins, the managing director of Carson Coaching, said there are at least four provisions financial advisers should discuss with their clients: the recovery rebates or stimulus checks; the unemployment provisions; the child tax credit; and the housing relief.
Recovery Rebates (Stimulus Checks)
Many individuals will receive (or have already received) the third round of Economic Impact Payments (EIP). Technically a 2021 refundable income tax credit, the rebate amount will be calculated based on 2019 tax returns filed (or on 2020 tax returns if filed and processed by the IRS at the time of determination) and sent automatically via check, direct deposit, or debit card to qualifying individuals, according to Broadridge Financial Solutions.
To qualify for a payment, Broadridge noted in its client alert that individuals generally must have a Social Security number and must not qualify as the dependent of another individual.
The amount of the recovery rebate is $1,400 ($2,800 if married filing a joint return) plus $1,400 for each dependent. Recovery rebates start to phase out for those with an adjusted gross income (AGI) exceeding $75,000 ($150,000 if married filing a joint return, $112,500 for those filing as head of household). Recovery rebates are completely phased out for those with an AGI of $80,000 ($160,000 if married filing a joint return, $120,000 for those filing as head of household).
Two items for financial advisers to note with respect to their clients:
First, the income levels in this new round of stimulus payments have changed from the previous two EIPs. So, some people won't be eligible for the third payment even if they received a first or second EIP or claimed a 2020 Recovery Rebate Credit.
That means, Hopkins said, that there might be people who received a check last year based on their 2019 income who are no longer eligible because their AGI is above the new ARPA thresholds.
And for clients who did receive a stimulus check or checks, advisers will likely need to know the answer to this question: Is the recovery rebate/stimulus taxable as ordinary income? And the answer is no. The EIPS are not treated as income.
Second, advisers will have to help taxpayers who don’t need the EIP figure out what to do with the money.
Hopkins notes two options:
- The client could donate the money to a child who has earned income who in turn could fund a Roth or traditional IRA with that money. “It’s a nice way to get them the cash to fund retirement,” Hopkins said.
- The client could donate that money to a charity, said Hopkins. “You're taking the money and actually giving it to somebody who needs it,” he said. “I think having that conversation might open up a bunch of other doors for you as an adviser.”
Child Tax Credit
For 2021, the child tax credit amount increases from $2,000 to $3,000 per qualifying child ($3,600 for qualifying children under age 6), subject to phaseout based on modified AGI, according to Broadridge. The legislation also makes 17-year-olds eligible as qualifying children in 2021. And for most individuals, the credit is fully refundable for 2021 if it exceeds tax liability.
The phaseouts begin at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. However, families who earn less than $200,000 ($400,000 for joint filers) could still claim the regular $2,000 credit.
The larger child tax credit provides an opportunity for financial advisers to discuss tax planning with their clients, said Hopkins. How will clients use that money? Where can they invest that money?
The legislation allocates additional funds to state and local governments to provide emergency rental and utility assistance through Dec. 31, 2021, according to Broadridge. And the legislation allocates funds to help homeowners with mortgage payments and utility bills.
According to Hopkins, it’s possible that clients of financial advisers might need emergency rental assistance. But it’s possible that some clients might be landlords who have tenants who need assistance. And the legislation has provisions that allow landlords to benefit from emergency rental assistance.
“Landlords can actually apply for this on behalf of the renters who are behind,” said Hopkins. “They do need to give the application to the individual renter and have them sign off on it. Then the check would either go to the renter directly to the landlord.”
Of note: the emergency rental assistance program is administered at the state level, said Hopkins. “That's a great value add if you're an adviser and you're looking for a reason to call your client and you know they're a landlord,” he said.
According to Broadridge, the legislation extends unemployment benefit assistance:
- An additional $300 weekly benefit to those collecting unemployment benefits, through Sept. 6, 2021
- An additional 29-week extension of federally funded unemployment benefits for individuals who exhaust their state unemployment benefits
- Targeted federal reimbursement of state unemployment compensation designed to eliminate state one-week delays in providing benefits (allowing individuals to receive a maximum 79 weeks of benefits)
- Unemployment benefits through Sept. 6, 2021, for many who would not otherwise qualify, including independent contractors and part-time workers
For 2020, the legislation also makes the first $10,200 (per spouse for joint returns) of unemployment benefits nontaxable if the taxpayer's modified AGI is less than $150,000. If a 2020 tax return has already been filed, an amended return may be needed.
September is an important date because many Americans will be vaccinated by then, and life may be back to normal, said Hopkins.
Plus, financial advisers should let their clients who receive unemployment benefits know that a portion won’t be taxed as ordinary income, said Hopkins.