Stimulus Payments in January
The IRS is sending direct deposits to eligible individuals' financial institutions or mailing paper checks. There is no requirement to take action for most recipients. The financial institution may treat the payment as provisional until the official payment date on January 4, 2021. Individuals should not contact their financial institution with timing questions - they generally will not have any additional information.
The majority of the stimulus payments will be sent by direct deposit. Some Social Security and other beneficiaries may receive payments through Direct Express. Those individuals who do not receive a direct deposit will usually receive a paper check. However, some individuals may receive a debit card through the mail.
Individuals who did not receive a first round Economic Impact Payment may need to claim the payment when they file their 2020 tax returns. The Economic Impact Payment will be described on Form 1040 as the Recovery Rebate Credit.
IRS Commissioner Chuck Rettig stated, "Throughout this challenging year, the IRS has worked around-the-clock to provide Economic Impact Payments and critical taxpayer services to the American people. We are working swiftly to distribute this second round of payments as quickly as possible. This work continues throughout the holidays and into the new year as we prepare for the upcoming filing season. We urge everyone to visit IRS.gov in the coming days for the latest information on these payments and for important information and assistance with filing their 2021 taxes."
Automatic Payment - The IRS will send payments automatically to individuals who filed a 2019 tax return, receive Social Security retirement, survivor or disability benefits, Railroad Retirement benefits, Supplemental Security Income or Veterans Affairs benefits. Anyone who registered and received the first payment using the Non-Filers tool on IRS.gov will also receive a payment.
Eligible Individuals - Generally, U.S. citizens and resident aliens who are not claimed as dependents on another person's income tax return are eligible for the payment. The payment will be up to $600 for qualifying individuals and $1,200 for married couples, with an additional $600 for each qualifying child. The full payments will be made to individuals with 2019 incomes under $75,000 or married couples with incomes under $150,000.
Stimulus Payment Status - You may check the status of your payment with the Get My Payment tool on IRS.gov.
Direct Deposit Information - If you have direct deposit information on file, the IRS will send the payment to that institution. If you do not have current information on file, you should expect to receive a check or debit card in the mail.
Paper Check or Debit Card - If you expect to qualify for a stimulus check and do not receive one through direct deposit by early January, you should watch your mail for either a paper check or a debit card. The Bureau of Fiscal Service is part of the Treasury Department and may send a number of the payments through debit cards.
Tax Records - If you receive a second Economic Impact Payment, you will receive a notice or letter from the IRS that explains the amount of your payment. While the payments are not taxable, you should keep this notice in your financial records.
Expanded Charitable Deduction in Relief Act
Many supporters of charitable giving were pleased with the expansion of charitable tax deductions in the COVID-19 relief package.
Independent Sector representative Jeff Moore stated, "We continue to be encouraged with congressional recognition of the fact that incentivized giving for all people, regardless of whether or not they itemize their taxes, is a matter of fairness and a matter of urgent need for charities across the nation." Independent sector and other charitable associations have been working diligently to encourage the extension and expansion of the Universal Charitable Deduction.
Senator James Lankford (R-OK) has been a leader in the campaign to expand charitable giving. He has introduced several Universal Charitable Deduction bills in the Senate and advocated support for expanding the above-the-line deduction.
Lankford was pleased with the extension of the $300 universal deduction to 2021 and the doubling from $300 to $600 for married couples. He stated, "I'm grateful we'll continue to empower nonprofits by including a charitable giving proposal that I have long supported in the latest relief bill to incentivize giving to nonprofits. Every person in our nation can give to the charity of their choice and get a direct benefit on their taxes at the end of the year while those in need get a direct benefit from their assistance right now."
Senator Tim Scott (R-SC) is a member of the Senate Finance Committee. He supported the charitable giving initiative and noted, "Our nonprofits, houses of worship and community organizations have done amazing work through tremendously challenging circumstances this year. We needed to step up and help them. By extending and increasing this new charitable giving deduction, these selfless folks will get more of the resources they need to continue their efforts to help those most in need."
Lankford and Scott had introduced the Universal Giving Pandemic Response Act and proposed a charitable deduction that would be a percentage of the standard deduction. The proposed charitable deduction would have been approximately $4,000 for individuals and $8,000 for couples. While their expanded deduction was not included in the stimulus bill, both Lankford and Scott were clearly appreciative that it extended and expanded the CARES Act provision.
Editor's Note: While the expanded Universal Charitable Deduction was helpful, the stimulus bill also extended the higher limits for itemized deductions. Individuals in 2021 will generally be permitted to deduct cash gifts up to 100% of their adjusted gross income (normally 60%) and corporations will be permitted to deduct up to 25% (normally 10%) of taxable income to charity.
Associations Seek Prompt PPP Guidance
In a letter to Treasury Sec. Steven Mnuchin and Small Business Administration Administrator Jovita Carranza, the American Bankers Association, the National Restaurant Association and a coalition of other organizations sought prompt guidance on the new Paycheck Protection Program (PPP) loan rules.
The association noted, "Now that Congress has passed H.R. 133, Coronavirus Response and Relief Supplemental Appropriations Act of 2021, the Paycheck Protection Program will again be utilized by our nation's nonprofits and businesses to cover payroll and other critical expenses in order to ensure they continue to serve their communities."
In the prior PPP Loan program, banks and other financial institutions made over five million loans to small businesses. These loans were critical in reducing the massive unemployment due to the pandemic lockdown.
To expedite the new PPP loans, the associations stated, "To ensure operational clarity and efficiency, we request all rules and guidance of any PPP enhancements or new small business relief programs be issued and finalized before the program goes into effect."
While the nonprofits and small businesses appreciate the assistance in the stimulus act, it is "imperative that SBA, Treasury and other agencies involved provide comprehensive and timely guidance." The associations hope that there will not be multiple changes that cause delays in the loans.
With the May PPP loan process, there were multiple interim rules and modifications that were "major roadblocks" and delayed the loans.
The associations concluded, "On behalf of our members and the millions of small businesses we serve, we urge you to issue guidance expeditiously to ensure a second round of funds reach those most severely impacted as quickly as possible."
Editor's Note: The second round of PPP loans is available to businesses with fewer than 300 employees and a 25% or greater reduction in gross receipts in any calendar quarter in 2020 as compared to the same calendar quarter in 2019.
Applicable Federal Rate of 0.6% for January -- Rev. Rul. 2021-1; 2021-2 IRB 1 (16 December 2020)
The IRS has announced the Applicable Federal Rate (AFR) for January of 2021. The AFR under Section 7520 for the month of January is 0.6%. The rates for December of 0.6% or November of 0.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.