Please wait a moment while we update the posts for the month. The Page will reload on update complete.
December 18, 2020
Dear WZ Clients, Business Associates and Friends,
This week, details on the Emergency Coronavirus Relief Act were released and the proposed legislation includes significant updates to the Paycheck Protection Program (PPP). If approved, the bipartisan bill will make $267.5 billion additional funds available for PPP loans and $13.5 billion for Economic Injury Disaster Loans also overseen by the Small Business Association.
Congress is working to attach the bill to a government funding package to be approved this week. In anticipation of the approved bill, we have highlighted changes that will impact borrowers.
Changes affecting existing PPP loans
Changes exclusive to the second round of PPP loans
AS ALWAYS, WAGNER & ZWERMAN IS HERE TO ANSWER ALL OF YOUR QUESTIONS AND CONCERNS. WE ARE ALL IN THIS TOGETHER.
STAY SAFE AND HEALTHY
** IF YOU HAVE MISSED ANY PREVIOUS WZ COMMUNICATION IN REGARDS TO COVID-19, PLEASE REFER TO OUR WEBSITE
Best,
WZ Partners
December, 2020
The Social Security Administration recently announced 2021 increases to both benefits and the taxable wage base for FICA taxes.
Increases Announced for 2021
Workers are facing a 3.7 percent increase in the taxable wage base subject to Social Security taxes, increasing the amount from $137,700 up to $142,800. This means high earners who make as much as or more than the taxable wage base will pay $8,853.60 of the employee withholding portion or $17,707.20 in total for the self-employed – who pay both employee and employer portions of the tax.
Retirees receiving benefits will only garner a 1.3 percent cost-of-living (COLA) raise in 2021, resulting in a raise of $20 per month for the average single beneficiary and $33 per month for the average retired couple. COLA increases for beneficiaries have been low for a long time, with several years seeing zero increases in the past decade or so. You can see the historic trend of COLA increases in the chart below, going back to 1975.
| Historical Social Security COLA Increases1 | |||
|---|---|---|---|
| Year | Increase | Year | Increase |
| 2020 | 1.3% | 1997 | 2.1% |
| 2019 | 1.6% | 1996 | 2.9% |
| 2018 | 2.8% | 1995 | 2.6% |
| 2017 | 2.0% | 1994 | 2.8% |
| 2016 | 0.3% | 1993 | 2.6% |
| 2015 | 0.0% | 1992 | 3.0% |
| 2014 | 1.7% | 1991 | 3.7% |
| 2013 | 1.5% | 1990 | 5.4% |
| 2012 | 1.7% | 1989 | 4.7% |
| 2011 | 3.6% | 1988 | 4.0% |
| 2010 | 0.0% | 1987 | 4.2% |
| 2009 | 0.0% | 1986 | 1.3% |
| 2008 | 5.8% | 1985 | 3.1% |
| 2007 | 2.3% | 1984 | 3.5% |
| 2006 | 3.3% | 1983 | 3.5% |
| 2005 | 4.1% | 1982 | 7.4% |
| 2004 | 2.7% | 1981 | 11.2% |
| 2003 | 2.1% | 1980 | 14.3% |
| 2002 | 1.4% | 1979 | 9.9% |
| 2001 | 2.6% | 1978 | 6.5% |
| 2000 | 3.5% | 1977 | 5.9% |
| 1999 | 2.5% | 1976 | 6.4% |
| 1998 | 1.3% | 1975 | 8.0% |
Medical Expenses Outpacing COLA increases
Low COLA increases are putting pressure on retirees’ finances as medical expenses are rising at a much faster pace, with some believing they are given too little weight in the COLA calculation. Moreover, retirees need to consider Medicare Part B and Part D premiums.
While the official 2021 premiums are not announced yet, there are estimates out there that Part B premiums (covering doctor and outpatient services) will raise $9 per month, or approximately 6.2% percent, from $144.30 to $153.30. These are just average figures, as there are income-related surcharges that apply to both Part B and Part D drug premiums. During 2020, for example, individuals making more than $87k per year and couples filing jointly making over $174k per year began paying higher premiums for Part B and Part D than other recipients, with those at the top of the surcharge paying almost $1,000 per month for Part B premiums alone.
Income Caps on Working Beneficiaries
Finally, there are new earnings limits for workers below full retirement age (age 66 for people born in 1943 through 1954). In 2021, those who are not at full retirement age will lose $1 in Social Security benefits for every $2 they earn over $1,580 a month ($18,960 per year). After reaching one’s full retirement age, there are no earning thresholds that will impact benefits.
Conclusion
The 2021 COLA increase continues the recent trend of coming in low and putting pressure on retirees’ finances, while medical expenses continue to rise at much faster rates. As a result, retirees will see less disposable income from their benefits, while high-earning workers will see continued tax increases that outpace benefit payouts. This puts pressure on all beneficiaries of the system.
1 Starting in 1975, Social Security benefit increases have been based on cost-of-living adjustments (COLAs). Pre-1975, the benefit increases were set by legislation.
Please click on the link below to see the official notice from NYC Department of Finance:
https://www1.nyc.gov/site/finance/taxes/business-interest-rates.page
The Social Security Administration recently announced 2021 increases to both benefits and the taxable wage base for FICA taxes.
Increases Announced for 2021
Workers are facing a 3.7 percent increase in the taxable wage base subject to Social Security taxes, increasing the amount from $137,700 up to $142,800. This means high earners who make as much as or more than the taxable wage base will pay $8,853.60 of the employee withholding portion or $17,707.20 in total for the self-employed – who pay both employee and employer portions of the tax.
Retirees receiving benefits will only garner a 1.3 percent cost-of-living (COLA) raise in 2021, resulting in a raise of $20 per month for the average single beneficiary and $33 per month for the average retired couple. COLA increases for beneficiaries have been low for a long time, with several years seeing zero increases in the past decade or so. You can see the historic trend of COLA increases in the chart below, going back to 1975.
| Historical Social Security COLA Increases1 | |||
|---|---|---|---|
| Year | Increase | Year | Increase |
| 2020 | 1.3% | 1997 | 2.1% |
| 2019 | 1.6% | 1996 | 2.9% |
| 2018 | 2.8% | 1995 | 2.6% |
| 2017 | 2.0% | 1994 | 2.8% |
| 2016 | 0.3% | 1993 | 2.6% |
| 2015 | 0.0% | 1992 | 3.0% |
| 2014 | 1.7% | 1991 | 3.7% |
| 2013 | 1.5% | 1990 | 5.4% |
| 2012 | 1.7% | 1989 | 4.7% |
| 2011 | 3.6% | 1988 | 4.0% |
| 2010 | 0.0% | 1987 | 4.2% |
| 2009 | 0.0% | 1986 | 1.3% |
| 2008 | 5.8% | 1985 | 3.1% |
| 2007 | 2.3% | 1984 | 3.5% |
| 2006 | 3.3% | 1983 | 3.5% |
| 2005 | 4.1% | 1982 | 7.4% |
| 2004 | 2.7% | 1981 | 11.2% |
| 2003 | 2.1% | 1980 | 14.3% |
| 2002 | 1.4% | 1979 | 9.9% |
| 2001 | 2.6% | 1978 | 6.5% |
| 2000 | 3.5% | 1977 | 5.9% |
| 1999 | 2.5% | 1976 | 6.4% |
| 1998 | 1.3% | 1975 | 8.0% |
Medical Expenses Outpacing COLA increases
Low COLA increases are putting pressure on retirees’ finances as medical expenses are rising at a much faster pace, with some believing they are given too little weight in the COLA calculation. Moreover, retirees need to consider Medicare Part B and Part D premiums.
While the official 2021 premiums are not announced yet, there are estimates out there that Part B premiums (covering doctor and outpatient services) will raise $9 per month, or approximately 6.2% percent, from $144.30 to $153.30. These are just average figures, as there are income-related surcharges that apply to both Part B and Part D drug premiums. During 2020, for example, individuals making more than $87k per year and couples filing jointly making over $174k per year began paying higher premiums for Part B and Part D than other recipients, with those at the top of the surcharge paying almost $1,000 per month for Part B premiums alone.
Income Caps on Working Beneficiaries
Finally, there are new earnings limits for workers below full retirement age (age 66 for people born in 1943 through 1954). In 2021, those who are not at full retirement age will lose $1 in Social Security benefits for every $2 they earn over $1,580 a month ($18,960 per year). After reaching one’s full retirement age, there are no earning thresholds that will impact benefits.
Conclusion
The 2021 COLA increase continues the recent trend of coming in low and putting pressure on retirees’ finances, while medical expenses continue to rise at much faster rates. As a result, retirees will see less disposable income from their benefits, while high-earning workers will see continued tax increases that outpace benefit payouts. This puts pressure on all beneficiaries of the system.
1 Starting in 1975, Social Security benefit increases have been based on cost-of-living adjustments (COLAs). Pre-1975, the benefit increases were set by legislation.
In order to survive – and even thrive – during these unprecedented times, small businesses have had to find new ways to make money. The UPS Store’s Small Biz Buzz survey found that 41 percent of small businesses in the United States took steps to modify their businesses in hopes of survival. Fifteen percent provided customers with curbside delivery options, 28 percent moved to online sales as their primary source of sales, and 65 percent made a concerted effort to grow their e-commerce capabilities.
More than 50 percent of those polled by a U.S. Census Bureau Small Business Pulse Survey said it would be at least half a year before pre-COVID levels of business come back. Looking at overall economic recovery, and we could be waiting five years or more for things to return to where they were before. When it comes to small businesses, it might take even more time; however, businesses that adapt will be more likely to succeed.
In order to increase the chances of the pivot being successful, Harvard Business Review recommends doing so based on the newly created conditions of the crisis. In the case of the pandemic, it’s created more telecommuting, disrupted supply chains, and required everyone to socially distance for work, leisure, and daily tasks. In light of these circumstances, there are three factors for a pivot to be successful.
Social Distancing Opportunities
With the pandemic demanding less contact, chiefly through social distancing, businesses must find ways to work around the new circumstances. One example is how dating websites have added video dating for users. Other examples include grocery stores limiting in-store customers, requiring workers and customers to wear masks, and adding more and wider delivery areas for groceries and other products.
Building on Original Business Concept
The second recommendation by HBR is that businesses examine how additional and different services or products complement the original business concept.
Let’s consider Airbnb; when travel and resulting bookings collapsed, the platform’s hosts received financial assistance that helped facilitate guest relations virtually. In a shift from its non-hotel lodging option via homeowners and apartment dwellers offering their abode for rent, Airbnb moved to provide hosts with the ability to hold online events, such as cooking classes, art therapy, virtual tours, or other activities.
Looking to the future and building on the opportunity for growth, tourists could learn about new places to travel and things to do and learn while visiting the new destination.
Adapting to Change by Adding Value
The final ingredient of a successful pivot, according to HBR, is that the move demonstrates how well a company can adapt, work through problems and adjust to market forces while proving profitable and resonating as a value in the consumer’s view.
Before the lockdown orders, Spotify placed a sizeable portion of its business model on having primarily free customers stream music on personal devices. Spotify would benefit in two ways – they wouldn’t have to send out Spotify-specific devices, along with relying on receiving advertisers’ income that free users would listen to in exchange for a free Spotify membership. However, when the pandemic hit, Spotify’s advertisers cut their marketing budgets, making this business model difficult for Spotify to sustain.
Spotify’s pivot offered podcasts for users from music artists, talk show hosts, celebrities, etc. By offering premium subscriptions for its podcasts, along with curated, niche programming, Spotify gave customers more control and a better value over previous media offerings.
While the pandemic doesn’t necessarily mean a “going out of business sign” for companies, it could spell the end of the road for those that don’t adapt to the new economy.
Sources
https://www.uschamber.com/co/start/strategy/metlife-us-chamber-small-business-index-covid-19
https://hbr.org/2020/07/how-businesses-have-successfully-pivoted-during-the-pandemic
https://www.uschamber.com/co/start/strategy/pivoting-your-business-to-survive-pandemic
There are certain year-end financial transactions that must clear by Dec. 31 to be reported on the 2020 tax return. It’s important to take a good look at your financial portfolio in light of the plethora of unusual events that occurred this year. Now is a good time to see if you have fallen off track and reposition your portfolio for better opportunities in 2021.
Investment Portfolio
Despite the dramatic stock market drop that accompanied the outbreak of COVID-19 on our shores, markets have recovered remarkably well. This means the traditional strategy of harvesting gains and losses at year-end could be appropriate for many investors. When your capital losses are more than your capital gains for the year, you can claim up to $3,000 to reduce your taxable income and even carry over remainder losses on next year’s tax return.
Harvesting is also a good way to rebalance your asset allocation strategy, so you are well-positioned to meet long-term goals starting in the New Year. If you are interested in selling winners and losers to mitigate your 2020 tax liability, make sure, these transactions are fully completed by Dec. 31.
Tip: Some investors might be tempted to sell shares for a loss and then buy back into that position. However, take pains to avoid running afoul of the “wash rule,” which is when an investor purchases a “substantially identical” security within 30 days of a loss sale. Doing so diminishes the losses you can claim on your taxes, even if you buy it back in January. This also can occur inadvertently through automatic dividend and capital gains reinvestment purchases – so monitor your holdings and make sure there’s a 30-day lag between sale and reinvestment.
Retirement Accounts
For workers who invest in an employer-sponsored 401(k) plan, you have until the end of the year to defer up to $19,500 ($26,000 if you’re age 50 or older) from your paycheck. If you’d like to stash away more money, the combined annual limit for traditional and Roth IRAs is $6,000 ($7,000 for age 50+) for 2020. Note, however, that contributions for these accounts may continue to be made up until you file your 2020 tax return.
Tip: Given the potential for higher taxes under the new administration, it might be wise to max out after-tax Roth IRA contributions while taxes are low. When taxes are higher, traditional IRAs and 401(k)s tend to be more valuable because tax-deferred contributions help reduce current income. You also might want to convert a portion of traditional IRA funds to a Roth this year to take advantage of the lower tax environment. Convert only a strategic portion to avoid tipping your current income into a higher tax bracket.
Retirement Plan Withdrawals
You have only until year-end to withdraw up to $100,000 without penalty from a retirement plan if you have been directly affected by COVID-19 this year. Note, too, that subsequent income taxes on this withdrawal either can be spread out over a three-year period or avoided entirely if you re-contribute the funds over the next three years.
Tip: Legislation passed early in the year permits retirees to skip taking required minimum distributions in 2020. However, because the stock market has recovered nicely, and in light of higher taxes in the future, it might be a good idea to go ahead and take this distribution before year-end.
Education Savings Accounts
If your college student received a tuition refund this year because the class experience moved online, be aware that any refunds of College Savings 529 plans must be deposited back into that account. Otherwise, that money is considered a distribution for non-qualified expenses. Make that deposit back into the 529 account by year-end to avoid any taxes or penalties.
Tip: Parents and grandparents can reduce their estates by making a year-end gift to a student’s 529 plan. You may gift up to $15,000 ($30,000 for married couples) per beneficiary without incurring gift taxes or affecting your lifetime gift tax exemption ($11.58 million).
While the pandemic is not over, we do have some good news. There are vaccines and they will be available soon. Here’s where we are in terms of an overall plan and where states are with distributing the vaccines.
Operation Warp Speed
The current administration has already purchased hundreds of millions of doses of several vaccine candidates. Two of them are from Moderna and Pfizer and they’ve shown significant efficacy in Phase 3 clinical trials. The incoming Biden administration will take on distribution and has established a COVID-19 Task Force. A limited number of doses may become available as early as December.
This document from the Center for Disease Control and Prevention (CDC) is the roadmap for state, territorial, tribal, and local public health programs and their partners. It focuses on how to plan and operationalize a vaccine response to the pandemic within their jurisdictions. It’s quite comprehensive and is a good reference for the coming months.
Phased Approach
In the Interim Playbook, the CDC has given states a set of planning assumptions by which they can develop their distribution plans and explains how the vaccine will likely be administered in phases.
Common Themes and Concerns from State Plans
The Kaiser Family Foundation (KFF), a non-profit organization focusing on national health issues, sought to collect plans from all 50 states and DC. As of Nov. 13, they’ve reviewed 47 of these plans and have singled out key areas contained within each plan.
All of these things are high-level summations of what is planned so far. For a more detailed explanation, check out the Interim Playbook from the CDC. The COVID-19 situation is ever-changing, but the most important takeaway is that steps are being put in place to help protect us all. Stay safe.
Sources
States Are Getting Ready to Distribute COVID-19 Vaccines. What Do Their Plans Tell Us So Far?
https://www.newsweek.com/fauci-optimistic-about-covid-19-vaccine-says-high-risk-could-get-it-december-1546384
https://www.cdc.gov/vaccines/imz-managers/downloads/COVID-19-Vaccination-Program-Interim_Playbook.pdf
Veterans’ Compensation Cost-of-Living Adjustment Act of 2020 (HR 6168) – Introduced by Rep. Elaine Luria (D-VA) on March 10, this bill increases Vet compensation benefits by 1.3 percent (the same as for Social Security recipients). The increase impacts veteran disability compensation, compensation for dependents, the clothing allowance for certain disabled veterans, and dependency and indemnity compensation for surviving spouses and children. This bill passed in the House in May and the Senate in September, and was signed into law by the president on Oct. 20.
Veterans’ Care Quality Transparency Act (HR 2372) – Designed to improve mental health care for veterans and reduce suicide rates, this bill was introduced by Rep. Lauren Underwood (D-IL) on April 25, 2019. It requires the Government Accountability Office (GAO) to report on all arrangements between the Department of Veterans Affairs (VA) and non-VA organizations related to suicide prevention and mental health services. The bill passed in the House in May, the Senate in September, and was enacted on Oct. 20.
Improving Safety and Security for Veterans Act of 2019 (S 3147) – This Act was introduced by Sen. Joe Manchin (D-WV) on Dec. 19, 2019. The bill passed in the Senate in December 2019, the House in November, and is waiting to be signed by the president. Following the investigation of events that ended in tragic veteran deaths in 2017 and 2018, this legislation aims to increase VA health center accountability. Specifically, it requires the Department of Veterans Affairs to submit reports to Congress detailing VA policies and procedures relating to patient safety and quality of care. The first report is due within 30 days after the bill is written into law.
Whole Veteran Act (HR 2359) – This bill was introduced by Rep. Connor Lamb (D-PA) on April 25, 2019. The purpose of this legislation is to expand VA Health efforts to deploy a holistic model of care that focuses on patient engagement and total health. It includes integrating non-drug approaches, such as hypnosis and acupuncture, with standard medical treatment. The bill passed in the House in May, the Senate in October, and was signed into law by the president on Oct. 30.
Vet Center Eligibility Expansion Act (HR 1812) – This legislation extends readjustment counseling and related mental health services to non-combat veterans. These benefits are now available to National Guard and Reserve troops whose service includes fighting national disasters and other emergency and crisis situations. Introduced by Rep. Phil Roe (R-TN) on March 18, 2019, this bill passed in the House in May, the Senate in September, and was signed by the president on Oct. 20.
A bill to nullify the Supplemental Treaty Between the United States of America and the Confederated Tribes and Bands of Indians of Middle Oregon, concluded on Nov. 15, 1865 (S 832) – This bill nullifies the supplemental treaty between the United States and this particular tribe in Middle Oregon, which was signed in 1865. The treaty restricted the tribe members from leaving the reservation, among other conditions. The Department of the Interior has stated that the treaty was never enforced by the federal government or Oregon. The legislation was introduced by Sen. Jeff Merkley (D-OR) on March 19, 2019, passed in both Houses, and signed into law on Oct. 20.
Native American Business Incubators Program Act (S 294) – This bill establishes a grant program to provide business incubation and other business services to Native American entrepreneurs and businesses. It was introduced by Sen. Tom Udall (D-NM) on Jan. 31, 2019, passed in both Houses, and signed by the president on Oct. 20.
