Core Financial Resources

December 2020 Stimulus Bill (Taxpayer Certainty and Disaster Tax Relief Act of 2020)

Tax

6 min read

Individuals

Pandemic Relief Stimulus Payments

Taxpayers will receive an advance on a new 2020 tax credit that amounts to $600 per taxpayer (if you’re keeping score, that’s $1,200 for joint filers) plus $600 per “qualifying child.” IRS announced these payments will be delivered by direct deposit beginning on Dec. 30th 2020. (IRS Announcement)

As with the CARES act, this credit will be reduced for households with income exceeding certain thresholds (Single - $75,000; Joint Filer - $150,000; Head of Household - $112,500).

Different from the CARES Act stimulus, this one will pay for each “qualifying child” rather than for each dependent under 17. A “qualifying child” is part of the dependent calculation but not the whole thing. While only one person may claim any given dependent, several different taxpayers may both have the same “qualifying child.” This is an important distinction for single parent households. Parents rejoice that full-time students under 24 also meet the definition of “qualified child.”

Another major change from the first bill is the requirement that both taxpayers (on a joint return have a social security number (SSN) has been removed. Now those on a tax return with a SSN will be eligible for the credit and/or an advance payment. This applies to the first and second round of payments.

If you don’t receive the correct payment amount soon, you will be able to calculate and receive the correct amount on your 2020 tax return.

Unemployment Benefits Expanded

‘Regular’ and Pandemic (including self-employed individuals) Unemployment Compensation was extended eleven (11) weeks. In addition, qualifying individuals will receive an extra $300 for the eleven-week period.

Earned Income & Additional Child Tax Credit Enhancements

The Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) is available to workers with earned income. The credit is calculated primarily based on the number of “qualifying children” and the amount of earned income a taxpayer has. For 2020 only, taxpayers may elect to use earned income from 2020 OR 2019 while calculating the 2020 credit. This may be a HUGE help to those who’s income has drastically changed from last year.

Educator Expenses Expanded

The above-the-line deduction of up to $250 for classroom related educator expenses is expanded to include the cost of personal protective equipment (PPE) and other supplies used to prevent the spread of COVID-19 purchased after March 12, 2020.

Tuition and Fees Deduction Removed

Before you panic, realize there were 3 main ways to benefit from education related expenses. The American Opportunity Credit (AOC), Lifetime Learning Credit (LLC), and the Tuition and Fees deduction. Now, for tax years beginning in 2021 the Tuition and Fees deduction will no longer be an option. To compensate for this, the income limits on the Lifetime Learning Credit have been raised to match the AOC.

Above-the-line Charitable Deduction extended

The CARES Act added a 2020 only deduction for charitable contributions up to $300 per tax return. This law extends the deduction for 2021 and allows joint filers a maximum of $600 per return (removing the marriage penalty).

Permanent Reduction in Medical Expense Deductions

Medical expense deductions once again must exceed only 7.5% of AGI to be considered an itemized deduction. Previously, Obamacare legislation has raised the bar to 10% of AGI for most. Keep in mind that the standard deduction [https://www.irs.gov/help/ita/how-much-is-my-standard-deduction] was not changed, so this may primarily benefit older taxpayers.

Principal Residence Debt Forgiveness

If you are among the unfortunate who suffer foreclosure or a short sale you find insult is added to injury when you learn you must pay tax on the value of any debt (including a home mortgage) forgiven. Over the years there have been periods of time where the law allows this to be avoided for debt forgiveness based on principal home mortgage (with limits). Unfortunately, these provisions have never been made permanent and have always expired. Once again, this benefit has been extended through 2025, but it’s limit has been reduced to $750,000 for joint filers ($1 million for single filers).

Businesses & Business Owners

PPP expenses are deductible

With this bill Congress puts in writing its original intent and reverses earlier IRS rulings that PPP funds are to be tax free AND expenses paid with those funds are also deductible. Previously IRS released several statements contradicting this, infuriating lawmakers and business owners alike.

Thankfully, Congress also specified that businesses filing as an S Corporation or Partnership will not reduce tax basis upon the forgiveness of the PPP loan. However, astute tax professionals have noticed while deductions have been granted and basis will remain unchanged, certain taxpayers may get caught in a timing issue forcing the tax deduction to be taken in 2021 instead of 2020.

PPP Round 2

PPP loans are available once again to those who missed out the first few times. Hungry for more? Here’s the qualifications:

  • Business has less than 300 employees per location
  • You can demonstrate at least a 25% reduction in revenue for the first, second, or third quarter of 2020 compared to the same quarter in 2019.
  • You have (or will) used all of the first PPP loan
  • You have (or will) used all of the first PPP loan
  • The business was operational before Feb. 25th 2020.
If you qualify you may receive2.5 times (3.5 for food service businesses) average monthly payroll & healthcare costs (capped at $2 million).

Employee Retention Tax Credit (ERTC)

This credit was set to expire with 2020 but was extended until June 30th, 2021. There are TONS of changes to this credit. The major one is the fact that PPP borrowers are no longer disqualified. Qualifications in 2020 were:

  • Shut down (full or partially) by government order OR
  • Experiencing a large drop in year-over-year gross receipts.
Before you get too excited, be aware that money spent using PPP money can NOT also be used for this credit. Still not a bad deal.

Meal Expenses 100% Deductible

For 2021 and 2022, a 100% deduction will be allowed for business related “food and beverages provided by a restaurant.” This should be a welcome incentive for businesses to spend money with a struggling restaurant industry. We’re sure IRS will have some clarifications on the definition of a “restaurant.” We only wish it was retroactively to 2020 expenses.

Exclusion for Student Loan Payments Extended through 2025

Employers have long been able to make tax free payments for employee education. This year the CARES act added the ability for employers to make student loan payments as well. Now this benefit has been extended through 2025.

Notice: This generic information is not intended to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary (by industry, entity type, and locale), consult your accountant, lawyer, and/or HR expert for specific guidance.
Scott Patterson

Scott Patterson

Author

Share this page via

It only takes 10 minutes to see if we’re a good fit.

In just ten minutes you can see if it makes sense for us to work together. No pressure, no sales tactics. Tell us about what’s working and not working for you. If we can help, we’ll schedule another time to go deeper with you.

Schedule "Good Fit" Call

Related Articles

Keep reading. Never stop learning.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Securities offered through Cetera Wealth Services, LLC, member FINRA/SIPC. Advisory Services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity.

Individuals affiliated with this broker/dealer firm are either Registered Representatives who offer only brokerage services and receive transaction-based compensation (commissions), Investment Adviser Representatives who offer only investment advisory services and receive fees based on assets, or both Registered Representatives and Investment Adviser Representatives, who can offer both types of services.

This site is published for residents of the United States only. Financial Professionals of Cetera Wealth Services, LLC may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Not all of the products and services referenced on this site may be available in every state and through every advisor listed. For additional information please contact the advisor(s) listed on the site, visit the Cetera Wealth Services, LLC site at https://cetera.com/cetera-wealth-services/disclosures

Cetera Wealth Services, LLC exclusively provides investment products and services through its representatives. Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services through their independent outside business. This information is not intended as tax or legal advice.

This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Investments & Insurance Products: Are not insured by the FDIC or any federal government agency- Are not deposits of or guaranteed by the bank or any bank affiliate- May lose Value

Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Indexes discussed are unmanaged and you cannot directly invest into an index. Past performance is not a guarantee of future results.

Neither diversification nor asset allocation assure or guarantee better performance and cannot eliminate the risk of investment losses. Investments are subject to market risks including the potential loss of principal invested. The strategies mentioned may not be appropriate for all investors. Please consult your tax and or financial advisor(s) to determine a strategy that works best for you.

Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty.

Converting from a traditional IRA to a Roth IRA is a taxable event.
A Roth IRA offers tax free withdrawals on taxable contributions.
To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes

Links provided from this web-site are strictly for informational purposes and are not an endorsement or recommendation of the site, company, content. Core Financial provides these links as a convenience to you, and has not tested any software or verified any information found at such sites. Risks are associated with the use of software and the information available on the Internet and you acknowledge and understand these risks before using any of these services.

Core Financial and Scott Patterson are affiliated with RamseyTrusted for tax services only.

www.sipc.org
www.finra.org
Check the background of your financial professional on FINRA's BrokerCheck
Check the background of this firm on FINRA's BrokerCheck

Important Information and Form CRS | Business Continuity Plan | Cetera Privacy Policy

Copyright © 2025 Core Financial Resources.