What’s in the $1.9 Trillion stimulus plan?

The American Rescue Plan, Biden’s $1.9 Stimulus Bill, will be an enormous boost to the US economy. Here’s a brief rundown of the items most likely to affect freelancers.

Stimulus payments:

New $1400 stimulus payments will go out per person on the return. This means that children and other dependents will get the full $1400 each, in addition to the taxpayers. Households with income under $150,000 (married filing jointly) and individuals with income under $75,000 will receive the full benefit. Households with income between 160,000 and 150,000 will get a reduced payment, as will individuals with income between $75,000 and $80,000. 

Unemployment:

Unemployment benefits have been expanded by an extra $300/week, and extended to September 6. In addition, unemployment benefits from 2020 will not be taxable up to $10,200 per person ($20,400 in a married filing joint couple). This benefit is retroactive, meaning that it will take effect on your 2020 tax return. If you have already filed your 2020 return, the IRS will do the calculation for you and send you a refund of the taxes you paid on your 2020 unemployment. Do NOT file an amended return. 

Money for families with children:

The American Rescue Plan will help families enormously. For 2021, the Child Tax Credit will be expanded from $2000 per child to $3600 per child under 6, and $3000 per child age 6-17. Notably, taxpayers will not need to wait until tax time to claim the credit. Payments will be sent directly to families in monthly installments starting in July 2021. These payments will go to married-filing-joint families earning under $150,000, heads of household earning under $112,500, and married-filing-separate families earning under $75,000. You may calculate your credit using a choice of either your 2019 or your 2020 income - whichever gets you the bigger credit.

The dependent care credit is enhanced for 2021. It will increase to $8,000 for 1 child or $16,000 for 2 or more children. The credit is for 50% of the costs of childcare, which include (as always) babysitters and summer camps so that the parent(s) can work. This means that the maximum credit will be $4000 for one child or $8000 for 2 or more (that is 50% x the cost of care up to $8000 for one child or $16,000 for two). The credit phases out starting at household income of $125,000 (married filing joint), to a reduced benefit of 20% of costs, but a reduced credit amount is still available for families with income up to $400,000.

The Supplemental Nutrition Assistance Program (SNAP) benefit will be increased 15% through September. And K-12 schools will receive over $120 billion in additional funding.

Earned income tax credit (EITC) expansion:

The Earned income tax credit is expanded. It will now include several groups who were not previously eligible:

• Age 19 if not a student

• Age 24 if a student

• Age 18 if an eligible foster child

• The age 65 upper limit for the EITC is repealed

Whereas the EITC in its original form was targeted primarily at working families with children, the EITC formula is now enhanced for single people with no children.  As with the child tax credit, you may calculate your credit based on 2019 or 2020 income; whichever provides you the bigger credit.

Teacher deduction:

The $250 deduction that K-12 teachers currently receive for classroom supplies paid for out of pocket has been expanded to include the purchase of PPE/sanitizer. The deduction amount remains $250.

Student Loans: 

The bill does not provide forgiveness for student loans, as many had hoped. However, any student loans forgiven between 2021-2025 will be tax free. This is a benefit, because forgiveness of debt would normally be considered taxable income.

Healthcare:

For those who have lost a job or had hours cut, the government will cover the full cost of COBRA health coverage through the former employer from April 1 through September 30th.

If you bought health insurance through a government exchange, the cost has been lowered to no more than 8.5% of your total income. This will be automatically applied--so there is no need to take additional action. 

For those who would consider buying marketplace health insurance if the prices were more affordable, the open enrollment date has been extended through May 15. You may also use the open enrollment period to switch from your current plan to a lower-priced plan.

Premium tax credits--the advanced payments made to taxpayers that subsidize the cost of their marketplace health insurance--are affected by the law, too. Normally, taxpayers are only eligible for premium tax credits if they have income between 100% and 400% of the Federal poverty level. For 2021, that cap is removed, making more people eligible for premium tax credits. Additionally, under normal circumstances, a taxpayer whose income rises above 400% of the poverty level has to pay back some or all of their advanced credits. For 2020 taxes, this payback will be forgiven altogether. And lastly, if unemployment income raised your income level above the threshold to qualify for premium tax credit health care subsidies, it will not be counted as income in consideration of the premium tax credit. 

Grants for Restaurants:

There is a new $30 Billion grant program called the Restaurant Revitalization Grant program. This will give money to struggling restaurant and food service businesses, with $5 Billion earmarked for businesses with gross receipts under $500,000. To check your eligibility and application requirements, see the Small Business Administration website for details and the latest updates.

All in all, the Biden stimulus bill, the American Rescue Plan, will put money in the pockets of the people in the US who need it most. It takes a big step toward a guaranteed income for families with children, lowers healthcare costs, and knits up some of the holes in our social safety net.

ArtWitch Podcast: Permission to Thrive + Money Mindsets

In this episode artist and tax expert Hannah Cole joins ArtWitch host Zaneta to talk all about money.

Art Witch Podcast with Zaneta

Tax expert and artist Hannah Cole discusses all things money with Art Witch Podcast host Zaneta of Brooklyn, New York. They also talk about mindfulness in this nearly hour-long podcast interview. How did Hannah go from being an artist to also being a tax expert and running a membership program?

Hannah speaks about empowerment for creative people (especially for BIPOC people and women) and they talk about smashing the patriarchy. They discuss issues people have with earning and having money and how to change your attitude. What can you accomplish when you are not trying to run from money issues and fear of the IRS? Taking control of your money and finances will give you the time and space you need to thrive in your creative career. We can shift what we think we're allowed to access, and we can find permission to thrive in our art practices.

What action steps can we take to get control of our money and our taxes? Hear about how to take advantage of the new tax credits from the recent American Rescue Plan stimulus bill that freelancers need to know about. “Involuntary” home schooler parents need to take advantage of the family leave credits. What can you do as a freelancer to prepare for tax season? What is the brand new retroactive change to unemployment tax laws from the stimulus? What advice does Hannah have for people who haven’t filed their taxes yet?

Listen to the interview below! Check out all of Art Witch’s podcast episodes here. Sign up for the free March 30 Masterclass that Hannah mentions in the broadcast here.

Unemployment Tax Savings from the 2021 Stimulus Bill

If you or your spouse collected unemployment in 2020, you need to watch this video!

President Biden recently signed the American Rescue Plan into law, and it has some very exciting provisions for people who collected unemployment during 2020. Hannah Cole of Sunlight Tax created the following short video to give you the latest information about how the new law will apply to unemployment income.

Hannah goes through specific information about the unemployment taxes affected by this retroactive legislation. Hannah covers what you need to know about filing, whether you have already filed your 2020 taxes or whether you have not filed yet. She goes through a few scenarios to show how much you can save depending on your current tax rate and whether more than one person in your household was collecting unemployment last year.

Here’s what Hannah has to say:

What the tax savings is on $10,200 of unemployment income (thanks Democrats!), and a shoutout to those of you who called, texted & knocked to get out the vote--you had a hand in this tax bill that will lift 50% of American children out of poverty and take a meaningful step towards guaranteed income for families with children. You made a difference. Americans (of all parties) will benefit from your work! Thank you!!!❤️🇺🇸

Watch the blog for a longer post about the entire stimulus bill coming soon!

What Do Arts Organizations Need to Know About the Federal Shuttered Venue Operators Grant?

Congress earmarked $15 billion in grants for performing arts venue operators impacted by the pandemic and here’s what you need to know.

On December 27, 2020, a congressional stimulus bill that was passed and signed into law by then President Trump had several provisions to help US residents through the COVID-19 crisis. Among these are additional stimulus payments, enhanced and extended Federal unemployment benefits, additional Paycheck Protection Program (PPP) money, simplified PPP forgiveness rules, an extension of the temporary charitable contribution deduction for taxpayers who take the standard deduction, and a doubling of the business meals deduction from 50% deductible to 100% deductible for the years 2021 and 2022 so long as the meal is purchased from a restaurant. (Takeout meals are okay.) These provisions should provide some help to all of us as we continue to weather the economic crisis.

But one item in the bill will specifically help people in the arts. Congress earmarked $15 billion in grants for arts venue operators whose income decreased due to the pandemic crisis. The money is meant to help these organizations weather the rest of the crisis, with priority given to the hardest-hit venues, and $2 Billion set aside for smaller, so called, “main street” venues. The funding is targeted primarily towards live venue operators, movie theaters, talent representatives, and live performing arts organizations. Museums (including zoos and aquariums) are eligible with some additional restrictions.

So, what do these grants look like? The Shuttered Venue Operators (SVO) Grant money, which will be administered by the Small Business Administration (SBA), provides grants of up to 45% of the organizations’ gross earned revenue (or $10 million, whichever is less). …read more…

This article first appeared on Hyperallergic on February 23, 2021.

What’s in the 12/27 stimulus bill for freelancers and arts organizations?

During the last gasp of 2020, Congress passed, and the President signed, a stimulus bill. While major new legislation is expected to pass in the early days of the Biden administration, the 12/27 Congressional stimulus bill is on the books now.

Illustrations by Hannah Cole

Here’s a list of provisions in the bill that are most likely to affect freelancers and creative people. (This is a selection, not a complete list. For more information, visit the Tax Foundation.)

Stimulus payments

Stimulus payments of $600 per taxpayer plus $600 per dependent under 17 will be sent out to the bank account you have on file with the IRS. Otherwise, you will get the money as a paper check or prepaid debit card. The full payments will go to single taxpayers with income under $75,000, $112,500 if Head of Household, and under $150,000 if married filing jointly. The payment is phased out $5 for every $100 dollars of income above this range.

You can go to IRS.gov/account to check the amount of your expected stimulus payment. Technically, this payment is an advance on a credit on your 2020 taxes. What this means is that if you had household/income changes during 2020 that have not yet been reported on your taxes, you will still get the money, but as a credit when you file your 2020 tax return (instead of immediately). For example, if you had a baby in 2020, you will get the $600 for that baby as a tax credit when you file 2020 taxes.

Happily, if your circumstances improved in 2020, and you received a payment that you actually wouldn’t be eligible for based on your 2020 taxes, there is no clawback provision. You get to keep the money.

Lastly, these stimulus payments are not taxable.

Unemployment

The enhanced unemployment benefits from the CARES act that expired have been reinstated, but at a lower dollar amount. Federal unemployment assistance--which gets layered on top of state unemployment payments--will be $300 per week through March 14, 2021. For workers who have both wage and self-employment income but whose usual unemployment calculation doesn’t consider the self-employment income, there is an additional $100 per week in Federal Unemployment benefits. Workers with at least $5,000 in self-employment income may qualify as part of the Mixed Earner Unemployment Compensation.

Federal unemployment benefits are extended for an additional 11 weeks.

Federal and state unemployment benefits are taxable income at the Federal level. Most states also tax unemployment benefits, but there are some exceptions.

Charitable contributions:

For 2020 and 2021, charitable contributions will be allowed as a deduction for taxpayers who take the standard deduction (normally charitable contributions are only deductible if you itemize). The limit for contribution deductions is $600 for Married Filing Joint couples, and $300 for all other filing statuses. Remember that itemized deductions are totally separate from business deductions. The largest itemized deductions are generally state and local taxes, mortgage interest, and charitable contributions if those are quite large. Itemized deductions tend to be taken only by relatively high income individuals who are homeowners and live in high-tax states.

Meals deductions for businesses

For 2021 and 2022 only, businesses may deduct 100% of their business meals as a business expense (normally this deduction is only for 50% of the actual expense). The meal must be provided by a restaurant. Takeout meals are allowed. Hopefully this will provide extra incentive for more spending at restaurants that need the business.

Changes in education credits/deductions

The tuition and fees deduction expired and was not renewed. 

However, the income limits on the Lifetime Learning Credit were increased. Now, the Lifetime Learning Credit phases out for taxpayers with income about $80,000 single or $160,000 married filing jointly (an income increase of $21k/$42k respectively). This phaseout limit now matches  the American Opportunity Credit. 

A few random changes:

• Mortgage forgiveness is excluded from income until 2025. (Under normal circumstances, mortgage forgiveness is treated as taxable income.)

• The reduction of the medical expense deduction floor from 10 percent to 7.5 percent of adjusted gross income will now be permanent. For context, before the 2018 Tax Cuts and Jobs Act, medical expenses were only deductible for taxpayers who itemized, and then only those expenses were deductible that exceeded 10% of their adjusted gross income. This meant that in 2017, if you itemized deductions and had medical expenses of $13,000 and an adjusted gross income of $100,000, that your medical expense deduction would be $3000 [ie $13,000 - (10% x $100,000) = $3000]. In 2018, with the floor lowered temporarily to 7.5%, the same calculation would yield a deduction of [$13,000 - (7.5% x $100,000) = $5500]. This 7.5% floor is now permanent.

• Flexible Savings Account (FSA) balances can be rolled from the 2020 tax year into 2021, and 2021 balances can be rolled into 2022. Normally, taxpayers lose the unused value of an FSA balance after the end of the year. This provision will help retain unused balances for expenses like childcare, which would otherwise be lost. 

Paycheck Protection Program (PPP)

Congress included language in the bill to allow deductions with forgiven PPP money. This clarifies a dispute between Congress and the IRS over whether expenses paid for with forgiven PPP loans could be deducted.

Forgiven PPP debt, per the original CARES Act, is not taxable as income.

Streamlined forgiveness of PPP loans of 150k or less

The new stimulus bill provides for streamlined forgiveness of PPP loans of $150,000 or less. This is not automatic forgiveness, but rather a reduction in the paperwork burden. A business loan will only get 100% forgiveness if it actually qualifies for forgiveness.

The loan forgiveness form will be no more than 1 page in length. The borrower must say how many employees they retained, and they must show the “estimated amount” spent on payroll. The Small Business Administration has 24 days from 12/27 to come out with this paperwork.

The legislation also eliminates the prior requirement to reduce the PPP forgiveness by the amount of Economic Injury Disaster Loan (EIDL) advances.

We don’t yet know details of how this will work.

PPP Round 2

There are some additional guidelines for new PPP loan applications - including rules for borrowers applying for a second PPP loan, as well as new borrowers. Loan applicants making their second application:

• Must have fewer than 300 employees

• Must have 25% or more decline in revenue in any quarter in 2020 compared to the same quarter in 2019

• For applications filed before the end of 2020, they can only use Q1, Q2 or Q3. If the application was filed in 2021, they can use Q4 of 2020.

• Have already used (or will use) all of their first PPP loan 

• Can show a 25% reduction or more in gross revenue in any quarter in 2020 compared to 2019

The calculation for determining the loan amount remains the same, but an increased amount is allowed for borrowers with a NAICS code beginning with “72” - ie the restaurant industry. To review, the original PPP loan calculation is:

Payroll divided by 12 times 2.5. Borrowers with NAICS codes starting with 72 (essentially restaurants) can take payroll times 3.5. 

To illustrate, if a taxpayer had payroll of $100,000 in 2019, their loan amount calculation would be:

$100,000/12 = $8,333.  $8,333 x 2.5 = $20,8333. So the maximum loan amount for that taxpayer would be $20,8333.

It that same taxpayer were a restaurant, the calculation would be: $8,333 x 3.5 = $29,165.50.

The maximum loan is now $2 Million (down from $10 Million in round one).

Borrowers can use either 2019 payroll or payroll for a one-year period before the loan date. The application deadline is March 31, 2021.

$15 Billion in Shuttered Venue Operators Grants, (aka Save Our Stages)

Lastly, $15 Billion dollars has been earmarked for loans to shuttered venue operators to be granted directly through the Small Business Administration (SBA). The grants will be specifically for eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate at least a 25 percent reduction in revenues. 

The application rollout will begin in stages, with eligible entities that have faced a 90% loss or more being allowed to apply first, then 14 days later, grants open to entities having faced a 70% or greater loss, and after that, all eligible entities allowed to apply. Applications have not yet been released by the SBA, but it will be important for eligible entities to gather paperwork ahead of the deadline and be ready to apply immediately.

More information on the #saveourstages SBA loans is available at the SBA website.

DISCLAIMER: True tax advice is a two-way conversation, and your accountant needs to hear your full situation to apply the rules correctly in your case. This is meant for general information only. Please don’t act on this alone.