4 Reasons Retirees Should Care About the New Coronavirus Stimulus Package

On Dec. 4, I received a text from a college roommate asking if I thought another round of stimulus would pass before Congress adjourned for the year.  He owns six restaurants and bars that are honoring severe occupancy limits and are surviving thanks to takeout, PPP and EIDL loans.  In the current political environment, I told him at the time, I would never bet on a deal getting done, unless it was part of a much bigger deal necessary to keep the federal government funded and open.  And, sure enough, on Dec. 27 President Trump reluctantly signed the 5,593-page “Consolidated Appropriations Act of 2021.”  The largest, by dollar, and longest, by length, spending bill ever passed, includes $900 billion of coronavirus relief.

Unlike my restaurant-owning friend, who desperately needs a fresh round of stimulus, it is unlikely that you — a retiree — are sitting at home studying this bill, looking for a lifeline.  That said, it is important to know what’s in this bill that will affect you, to make sure you’re getting as much as possible out of your tax dollars. 

1. You’ll (Probably) Get Another Check

In a weeklong standoff between Congress and President Trump, where #MitchBetterHaveMyMoney was trending on Twitter, the stimulus package was passed with its $600 direct payments for certain taxpayers.  Because the entire purpose of these stimulus packages was to provide relief to those suffering economic setbacks due to the virus, you might think that retirees, who aren’t in the workforce, would not be eligible.  Wrong.  The payments are based solely on adjusted gross income (AGI), not employment status or age.  Any taxpayer who is married and files jointly, and has an AGI of $150,000 or less, will receive the full $600, as well as qualifying dependent children 17 or younger.  For single filers, the AGI cap is $75,000.  Reduced amounts are based on phaseouts beyond those limits. 

Thanks to this new stimulus money, you can now pay your Comcast bill for two more months or afford one-third of a Peloton.  Of course, as Joe Biden takes office, that could change again. He has proposed a third stimulus check of $1,400 in his $1.9 trillion economic stimulus plan. We’ll have to wait and see what happens with that.

2. You Might Get a $600 Tax Break for Charitable Giving in 2021

I admire the intention here, as charities are helping many of the people hurt most by the pandemic.  The CARES Act increased the percentage of gross income you could write off, for cash contributions, from 60% of gross income up to 100% of gross income.  It also added up to a $300 above-the-line charitable deduction for those who take the standard deduction. The new appropriations act extended the former through 2021 and, in certain instances, expanded the latter.  Those who file jointly, and take the standard deduction, in 2021 can take up to a $300 deduction per taxpayer, meaning $600 per couple.  In 2020, the deduction was $300 per tax return, not per person, so married couples were limited to a $300 deduction.

It’s important to note that the percentage-of-AGI limits typically come into play only with significant, one-time gifts.  Those gifts often come in the form of appreciated stock or capital assets, donated directly to a charity, trust or donor advised fund.  This adjustment specifically excludes those types of donations.  It would surprise me if a savvy planner would advise driving your AGI down to zero with a cash gift. 

3. The 7.5% AGI Floor on Medical Expense Deductions Has Been Extended

The appropriations bill includes a subsection titled the “Taxpayer Certainty and Disaster Tax Relief Act of 2020.” Apparently, continuing to call this annual activity “extenders” was just too simple.  These are the bills that often, as they indicate, extend certain provisions of the Internal Revenue Code by another year or two, or retroactively for the previous year.

The extension of the 7.5% AGI hurdle for medical expense deductions is a win for retirees, who see ever-increasing health care expenses.  This has bounced between 7.5% and 10% for many years.  Unlike many “extenders,” this was permanently (or at least until Congress changes its mind) pegged at 7.5%.

Here’s an example:  John was sick in 2020.  He had gross income of $100,000 and medical expenses of $10,000.  With a 7.5% hurdle, he can write off his medical expenses in excess of $7,500 on his Schedule A.  He gets to write off $2,500.  If the hurdle had been 10%, he could have only written off expenses in excess of $10,000, or, zero. 

4. Required Minimum Distributions Are Back

Our firm works with retirees in the Washington, D.C., area, where federal pensions are common, and RMDs are often more of a nuisance than a necessity.  So, I was relieved when the CARES Act suspended 2020 RMDs.  I was excited when I heard murmurs that this new bill would extend that through 2021.  My emotional roller coaster headed south again when I found out that such a provision was left out of the final bill.

With RMDs back in play, we face a somewhat tricky situation due to a provision in the SECURE Act.  That law, which took effect on Jan. 1, 2020, pushed the starting RMD age from 70½ to 72, for those born on or after July 1, 1949.  Therefore, those who had just started taking these distributions had a temporary reprieve.  Those who were about to start got an extension.  The IRS imposes an especially hefty penalty of 50% for missed distributions, so it’s important that you confirm when you must begin taking these and how much you have to take. 

I hope this bill will provide significant help for all those hurt during a horrific year.  I hope it means that I will be able to safely visit my favorite bars and restaurants, including those owned by my college roommate, before they go out of business.  Lastly, I hope no retiree wasted their most valuable asset — their time — reading the 5,593 pages that Congress churned out.  Everything you need to know is in the 800 words above.