We just saw the largest stimulus package in U.S. history with the $2 trillion CARES Act. Now, another massive stimulus bill has been passed in the House of Representatives and now waits for review from the Republican-led Senate. Although the HEROES Act (Health and Economic Recovery Omnibus Emergency Solutions Act) is not officially passed legislation, it does give visibility into what is coming down the pipeline given the bipartisan agreement on a need for additional stimulus—just not agreement on what that stimulus would look like.
Will there be more stimulus? Only time will tell, but reviewing potential legislation before it becomes law allows you to understand “what might be,” which prepares you to act swiftly in the future in the event the legislation passes. To that end, here’s what you need to know about the current proposal:
What Is the HEROES Act?
The next round of fiscal stimulus in response to the economic impact of the coronavirus is spelled out over 1,815 pages and spends over $3 trillion. Even though this bill faces difficulty making it through the Republican-controlled Senate as currently proposed, both sides of the aisle agree that there is still great need for additional stimulus which will likely force a compromise. That means, although not all of the provisions below will make it to the final version, many of them could. Current proposed provisions include:
The HEROES Act expands the 2020 rebates that were already issued to include all dependents, including full-time students (up to the age of 24). With that comes another rebate check similar to the last round: $1,200 per person and $500 for each child up to the same adjusted gross income (AGI) phase-out thresholds. These rebates are also paid in advance without repayment, but this time the rebates are capped at $6,000 per family.
Reinstate SALT Deduction
The proposed legislation allows individuals in high-tax states to deduct state and local taxes (SALT) from their federal taxes for 2020 and 2021.
Expanded Child Tax and Dependent Care Credits
Child tax credits are proposed to increase to $3,000 ($3,600 if under 6 years old) and adds children who are 17 years old. These credits are fully refundable, and the Treasury will try to pay in advance. The dependent care credit will double to $6,000 ($12,000) per family and increase the credit rate to 50%. The AGI phase-out will begin at $120,000 instead of $15,000.
Expanded FSA Health Plans
Under proposed legislation, individuals with FSA health plans will be able to carry over up to $2,750 to the next year instead of the current $500. FSA plans for dependents can carry over the annual maximum.
Teachers will receive an increased expenses deduction up to $500, while first responders and COVID-19 front line workers will be able to deduct $500 in deductions as well.
Waived 60-Day Rule for RMDs
The CARES Act allowed individuals to return RMDs taken within the last 60 days. The HEROES Act would allow for “put back” of all 2020 RMDs and any other IRA distributions by November 30, 2020. Additionally, individuals would be allowed to put back 2019 RMDs by November 30, 2020 and file an amended 2019 tax return to claim a refund for a lower income.
Emergency Pension Plan Relief
This increases the number of eligible plans and simplifies the application process for plans in a critical or declining status. There are no suspensions to multiemployer pension plans. Single employer plans will have an increase for shortfall amortization from seven to 15 years, plus the interest rate decrease to 5% extended to 2026.
The HEROES Act offers broad extensions to the unemployment benefits created in the CARES Act. The $600 additional unemployment insurance, pandemic unemployment assistance, and eligibility is extended to January 31, 2021.
Student Loan Enhancements
Extend moratorium on payments for private loans. Additionally, the Treasury will make monthly payments on your behalf up to $10,000 in student debt until September 2021.
Credit Score Protection
Prevents providers from running new models that decrease credit scores.
The proposed legislation allocates $75 billion for struggling homeowners and prevents evictions and foreclosures.
Provides emergency assistance to producers of euthanized livestock, including setting aside $17 billion for direct payments to agricultural producers.
Employee Retention Credit
The tax credit increases from 50% to 80% for eligible wages for employee retention, plus eligible wages are increased from $10,000 to $15,000.
Expand Payroll Tax Credit for Fixed Costs
The HEROES Act offers a tax credit equal to 50% of a company’s payroll for fixed costs like rent, mortgage, and utilities. However, the companies must have fewer than 1,500 employees or less than $41 million in revenue.
Business Interruption Credit for Self-Employed
Self-employed individuals can take advantage of a 90% refundable credit for loss of gross income.
Expand Paid Sick Leave from FFCRA
The HEROES Act expands paid sick leave offered through the Families First Coronavirus Relief Act through December 31, 2021. It also repeals reduced credit amounts and expands limitations from $10,000 to $12,000, and from 50 days to 60 days. This also reinstates business loss limitations from the Tax Cuts and Jobs Act.
Paycheck Protection Program Provisions
Expand Eligible Covered Period
The eligible expense period is extended through December 31, 2020.
Improve Loan Terms
Paycheck Protection Program loan terms are extended from two years up to five years with simple interest, not compound interest.
Expanded Loan Forgiveness Rules
The loan forgiveness period increases from eight weeks to 24 weeks up to December 31, 2020. The HEROES Act also eliminates the 75/25 rule and clarifies the taxability of loan forgiveness and expenses. SBA loan forgiveness is also extended from six months up to one year.
The key provisions above are just part of the massive stimulus package currently proposed in Congress. Specific aspects of this proposed legislation are likely to change before being signed into law, but getting to know the provisions now and how they could impact your financial plan will allow you to act quickly once the bill makes its way to the President’s desk.
Keep in mind that with proposed legislation like the HEROES Act in the works, tax volatility will continue, but with that comes planning opportunities. Understanding what is in motion is key for financial planning, and the specialists at Wealth Enhancement Group can help you identify and revise your planning strategy as new legislation takes effect.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
CFP®, CPA, Series 7 Securities Registration,1Series 66 Advisory Registration,† Insurance License Brian diligently advises clients on income, gift, trust and estate tax issues while leveraging the expertise of the Roundtable to deliver comprehensive, customized strategies. For more than 10 years he has helped numerous clients develop and implement sophisticated financial, tax and estate strategies that are in alignment with their goals and values. Brian is a...Read More