From stimulus checks to taxes and housing relief, financial
advisers need to review the major provisions in the $1.9 trillion package that
pertains to their clients.
In an interview, Jamie Hopkins, the managing director of
Carson Coaching, said there are at least four provisions financial advisers
should discuss with their clients: the recovery rebates or stimulus checks; the
unemployment provisions; the child tax credit; and the housing relief.
Recovery Rebates (Stimulus Checks)
Many individuals will receive (or have already received) the
third round of Economic Impact Payments (EIP). Technically a 2021 refundable
income tax credit, the rebate amount will be calculated based on 2019 tax
returns filed (or on 2020 tax returns if filed and processed by the IRS at the
time of determination) and sent automatically via check, direct deposit, or
debit card to qualifying individuals, according to Broadridge Financial Solutions.
To qualify for a payment, Broadridge noted in its client
alert that individuals generally must have a Social Security number and must
not qualify as the dependent of another individual.
The amount of the recovery rebate is $1,400 ($2,800 if
married filing a joint return) plus $1,400 for each dependent. Recovery rebates
start to phase out for those with an adjusted gross income (AGI) exceeding
$75,000 ($150,000 if married filing a joint return, $112,500 for those filing
as head of household). Recovery rebates are completely phased out for those
with an AGI of $80,000 ($160,000 if married filing a joint return, $120,000 for
those filing as head of household).
Two items for financial advisers to note with respect to
First, the income levels in this new round of stimulus
payments have changed from the previous two EIPs. So, some people won't be
eligible for the third payment even if they received a first or second EIP or
claimed a 2020 Recovery Rebate Credit.
That means, Hopkins said, that there might be people who
received a check last year based on their 2019 income who are no longer
eligible because their AGI is above the new ARPA thresholds.
And for clients who did receive a stimulus check or checks,
advisers will likely need to know the answer to this question: Is the recovery
rebate/stimulus taxable as ordinary income? And the answer is no. The EIPS are
not treated as income.
Second, advisers will have to help taxpayers who don’t need
the EIP figure out what to do with the money.
Hopkins notes two options:
The client could donate the money to a child who has earned
income who in turn could fund a Roth or traditional IRA with that money. “It’s
a nice way to get them the cash to fund retirement,” Hopkins said.
The client could donate that money to a charity, said
Hopkins. “You're taking the money and actually giving it to somebody who needs
it,” he said. “I think having that conversation might open up a bunch of other
doors for you as an adviser.”
Child Tax Credit
For 2021, the child tax credit amount increases from $2,000
to $3,000 per qualifying child ($3,600 for qualifying children under age 6),
subject to phaseout based on modified AGI, according to Broadridge. The
legislation also makes 17-year-olds eligible as qualifying children in 2021.
And for most individuals, the credit is fully refundable for 2021 if it exceeds
The phaseouts begin at $75,000 for single filers, $112,500
for heads of households, and $150,000 for joint filers. However, families who
earn less than $200,000 ($400,000 for joint filers) could still claim the
regular $2,000 credit.
The larger child tax credit provides an opportunity for
financial advisers to discuss tax planning with their clients, said Hopkins.
How will clients use that money? Where can they invest that money?
The legislation allocates additional funds to state and
local governments to provide emergency rental and utility assistance through
Dec. 31, 2021, according to Broadridge. And the legislation allocates funds to
help homeowners with mortgage payments and utility bills.
According to Hopkins, it’s possible that clients of
financial advisers might need emergency rental assistance. But it’s possible
that some clients might be landlords who have tenants who need assistance. And
the legislation has provisions that allow landlords to benefit from emergency
“Landlords can actually apply for this on behalf of the
renters who are behind,” said Hopkins. “They do need to give the application to
the individual renter and have them sign off on it. Then the check would either
go to the renter directly to the landlord.”
Of note: the emergency rental assistance program is
administered at the state level, said Hopkins. “That's a great value add if
you're an adviser and you're looking for a reason to call your client and you
know they're a landlord,” he said.
According to Broadridge, the legislation extends
unemployment benefit assistance:
An additional $300 weekly benefit to those collecting
unemployment benefits, through Sept. 6, 2021
An additional 29-week extension of federally funded unemployment
benefits for individuals who exhaust their state unemployment benefits
Targeted federal reimbursement of state unemployment
compensation designed to eliminate state one-week delays in providing benefits
(allowing individuals to receive a maximum 79 weeks of benefits)
Unemployment benefits through Sept. 6, 2021, for many who
would not otherwise qualify, including independent contractors and part-time
For 2020, the legislation also makes the first $10,200 (per
spouse for joint returns) of unemployment benefits nontaxable if the taxpayer's
modified AGI is less than $150,000. If a 2020 tax return has already been
filed, an amended return may be needed.
September is an important date because many Americans will
be vaccinated by then, and life may be back to normal, said Hopkins.
Plus, financial advisers should let their clients who
receive unemployment benefits know that a portion won’t be taxed as ordinary
income, said Hopkins.
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