Advisors Help Clients Navigate $1.9 Trillion Stimulus Package

Since President Joe Biden signed the American Rescue Plan into law, financial advisors have been working overtime to help clients navigate the $1.9 trillion stimulus package.

The most discussed aspect of this coronavirus relief plan may be $1,400 stimulus checks, but it contains other critical components. For example, it affects 2020 tax returns in several ways and offers provisions for small businesses. Those include additional allocations for the Paycheck Protection Program, or PPP, and $25 billion in relief for bars, restaurants and other food service businesses.

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Tracey Dean, founder of Tracey Dean Financial in Salt Lake City, sees glimmers of optimism for her clients. Several were affected by tax provisions in the bill, and she’s encouraging those who own small businesses to apply for the PPP loans.

“With increased vaccination availability, decreased cases and states loosening restrictions, clients see hope on the horizon,” she says.

With the two previous rounds of stimulus payments, uncertainty about the future steered people toward spending the payments pragmatically, Dean says. That may be different this time.

“For those who continued with a pre-pandemic near-normal lifestyle, we will see a lot more discretionary spending,” she says. “My hope is that it is done in a thoughtful way — in local communities to boost small businesses or by way of charitable giving.”

Jamie Hopkins, director of retirement research at the Carson Group in Bryn Mawr, Pennsylvania, says his firm has received a lot of questions from clients asking about the tax rebate checks, tax changes and the small business provisions in this stimulus round. “Perhaps surprising, but we got a lot of questions from high-net-worth individuals about the rebate checks, often asking advisors for guidance for their family, friends and kids,” he says.

Hopkins says it’s different from the usual client outreach, which is centered around market returns and financial planning. The Carson Group has been proactive about sharing stimulus bill information with clients.

“After each stimulus bill for the past year, we have immediately gotten a newsletter, blog, article, video and/or webinar out to our clients,” Hopkins says. “We made a commitment in time and energy to be there for our clients as a trusted resource.”

[Read: Financial Advisors Eye Biden’s Plan for Estate Taxes in 2021]

Taxes Take on New Importance

Jason Priebe, partner and wealth advisor at Priebe Wealth in Maple Grove, Minnesota, is counseling his clients on specific aspects of the American Rescue Plan when it comes to tax planning — a big concern for many this year.

Priebe explains that the first $10,200 of unemployment income is now nontaxable, thanks to the new relief package. He notes that a married couple filing jointly, who received unemployment income in 2020, should work with their tax planner to keep their income below $150,000.

“This could result in tax savings of more than $2,000,” Priebe says. “Consider contributing to a retirement account or health savings account to lower your 2020 income if necessary.”

Dean echoes the importance of tax planning this year and notes that people who already filed their 2020 taxes may not be rewarded by filing early.

“This could be to their detriment,” she says. “Those that had increased earnings in 2020 versus 2019 could be over the threshold to receive the third stimulus and are probably wishing they procrastinated a little longer.”

For those who already filed 2020 taxes, Dean suggests filing an amendment if they are affected by the provision for $10,200 in tax-free unemployment benefits.

Hopkins says his firm is also helping clients sort out eligibility for the $1,400 stimulus checks. An individual with an adjusted gross income, or AGI, of $75,000 or less will receive $1,400. A married couple filing jointly, with AGI of $150,000 or less, will receive $2,800.

“The income phaseouts are lower than the last two rounds of rebate checks. So there will be some people that received checks before that do not qualify this go-round,” he says.

Even those who don’t receive a check this time may be eligible for other benefits in the package.

For example, payments for adult dependents are more generous this time. As many as 26 million more people, including college students, elderly parents or disabled adults, may be eligible for a $1,400 payment if they are claimed as dependents on someone else’s taxes.

The bill also temporarily expands the child tax credit for 2021 and will not affect 2020 taxes. The credit was expanded to $3,000 for children ages 6 to 17 and $3,600 for children under age 6. That’s an increase from $2,000 per dependent child up to age 16.

[Read: Your Guide to Tax Efficiency in 2021 and Beyond]

Help for Small Businesses

Small business owners are well represented among financial advisory clients. Priebe notes that restaurant owners, whose businesses have been hit especially hard, may be eligible for relief funds earmarked specifically for the food service industry.

Dean adds that there are several opportunities for small business funding. The most widely available is the Paycheck Protection Program.

“I am encouraging clients, many sole proprietors who did not know they could be included, to apply for the first or second round of funding,” she says.

The deadline for applications is the end of March, but some members of Congress are proposing that the PPP deadline be extended until May 31 and allow another 30 days for the Small Business Administration to process all applications.

What Was Left Out of the Stimulus Bill

Hopkins notes that several items were not included in the bill.

“Many expected some student loan forgiveness in the stimulus, and the bill fell short here of expectations,” he says. “I expect a lot of attention here moving forward, as relief didn’t come for those burdened by high loan amounts and weakened job prospects in light of 2020.”

He adds that two other items not included were a minimum wage increase to $15 and relief for required minimum distributions from qualified accounts. The latter was included in the 2020 Coronavirus Aid, Relief and Economic Security Act, or CARES Act, but it only applied to last year.

Hopkins sees pros and cons about the newest bill. But he believes it will serve its purpose.

“The rebate checks worked in 2020 to spur on spending, savings and enhanced economic activity,” he says. “While this government spending will have some longer-term impacts on debt, it will likely have a positive short-term spending and (gross domestic product) impact.”

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