The Latest Stimulus Package: What You Need to Know

The Latest Stimulus Package: What You Need to Know

On March 11, President Biden signed the expansive $1.9 trillion American Rescue Plan (ARP) into law. Broadly speaking, the relief legislation is intended to speed up the economic recovery and hasten the distribution of vaccines.

So what does the latest fiscal stimulus package mean for you and your loved ones?

Direct Payments to Low- and Middle-Income Earners

Compared to the initial CARES Act checks, ARP payments are aimed at people who bring home slightly less adjusted gross income (AGI). In this case, individuals earning up to $75,000 a year stand to receive the full $1,400 and couples bringing in $150,000 or less will get $2,800. The payments are pared down for earners with up to $80,000 in AGI and $160,000 for couples.

Higher-income households are ineligible for payments this time, while others become first-time recipients—namely, adult dependents including college students, disabled individuals or elderly family members living under your roof. One thing to note: Payments will be issued to the taxpayer, not the dependent.

If you’re not sure about your status or eligibility, it’s worth checking the IRS’ “Get My Payment” tracker on the agency’s website by clicking here.

Assistance for Parents

The ARP expands the child tax credit for the 2021 tax year to $3,600 per child under age 6 and $3,000 for children ages 6 through 17. Previously, the benefit was $2,000 a year for children up to age 16. While this won’t impact your 2020 tax filing, half of the 2021 credit can be received in advance through payments by the IRS in the second half of 2021.

As with the direct payments, the credits start to phase out for individuals with an income in excess of $75,000, for heads of households earning $112,500 and $150,000 for couples filing jointly. (The payments decrease by $50 for every $1,000 in income above those thresholds.) The previous credit of $2,000 per child remains unchanged for married couples earning $400,000 and individuals making $200,000 or less.

Note that this is a tax credit (it reduces the amount of taxes you owe), not a tax deduction (which reduces how much of your income is subject to taxes).

Extended Unemployment Assistance

While thousands continue to file for unemployment benefits on a weekly basis, their numbers are ebbing and full-time employment is on the rise. In February, the unemployment rate fell slightly to 6.2% from 6.3%. That’s a far cry from the 14.7% we saw in April 2020, at the onset of the epidemic, but remains stubbornly above the 3.5% unemployment rate from February 2020.

With a nod to symbolism, the ARP extends the expanded unemployment benefits that were scheduled to expire earlier this week to Labor Day (September 6). Included in the provisions are Pandemic Unemployment Assistance for the self-employed, gig workers and others who aren’t covered by state-level help, and Pandemic Emergency Unemployment Compensation, which provide extra assistance to the long-term unemployed. Recipients also receive an additional $300 each week until the September expiration.

As part of the benefit, the ARP waives federal taxes on the first $10,200 of unemployment benefits collected in 2020. (However, states may not waive these taxes.) Individuals and couples who earned less than $150,000 in 2020 are eligible for the tax break.

Expanded Access to Health Care Subsidies

The ARP expands eligibility for the Affordable Care Act (ACA) premium tax credit and increases subsidies to the tune of about $34 billion. The biggest adjustment is an increased subsidy for people buying private health insurance, including some higher earners who didn’t previously qualify. The changes are expected to extend coverage to some 2.5 million uninsured Americans through 2022.

The ARP also covers 100% of COBRA premiums—often expensive continuing health care coverage for laid-off workers who received insurance through their job—for those who lost a job in the past year, through September 2021.

The law goes on to state that no citizen will pay more than 8.5% of their income on health insurance. It’s estimated that about three-quarters of uninsured people will be eligible for some form of financial assistance. This means that not only will more people be insured, but they’ll also be able to afford better insurance rather than settling for bare-bones coverage.

The Adviser Investments Take

The massive cash infusion into the economy provided by the ARP isn’t without critics, particularly those who see it as a gateway to higher inflation or are concerned about piling on additional debt. We take these concerns seriously.

We’ve written about inflation as well as debt recently. And while we think we see the light at the end of the tunnel with the pandemic itself, thanks to the increasing availability of vaccines in the U.S., the economy still has a long way to go. For example, if you factor in the number of people who have left the workforce and are not actively looking for a new job (due to the pandemic or other factors), the employment picture is worse today than it was at the depth of the Great Recession.

We see the stimulus as a net positive for investors, particularly for some of the sectors hardest-hit by lockdowns (hospitality, travel and other businesses reliant on in-person commerce). As the reality of the recovery begins to reveal itself—thanks to the stimulus and vaccine availability—we may see new wind in not just the economy’s sails but the market’s as well.

Vanguard Changes Course in China

Vanguard has been looking for ways to sell low-cost index funds to Chinese investors for years. Now, after months of preparation, The Wall Street Journal reported this week that those plans are on hold—firm leaders have apparently determined that the process would take longer than expected, so they’ve mothballed the idea.

China opened its doors to foreign fund companies’ applications for mutual fund licenses last year—and Vanguard’s rivals beat it to the punch. BlackRock has already received preliminary approval to launch a fund business there; applications are pending for Neuberger Berman and Fidelity, among others.

Unlike its competitors, Vanguard has instead opted to double down on its partnership with China-based financial technology firm Ant Group, which builds investment portfolios for retail investors with cheaper fees than competitors. That certainly fits Vanguard’s low-cost ethos. It’s also a way to address what a company spokesperson called China’s “fairly crowded mutual fund market.”

The Ant Group partnership—announced in late 2019—isn’t the company’s first foray into the Chinese financial markets.

In 2015, Vanguard announced that its Emerging Markets Stock Index fund would be the first major emerging market fund to add exposure to China A-shares, stocks listed on the Shanghai and Shenzhen exchanges. And in August 2020, the firm moved its main outpost in Asia from Hong Kong to Shanghai to support its joint venture with Ant Group.

The joint partnership with Ant Group is not without its challenges. Last week, the company’s CEO abruptly resigned. Prior to that, Ant’s planned November IPO was thwarted after Chinese regulators required it to restructure itself as a financial company overseen by China’s central bank rather than as an independent tech firm.

Is the Ant Group joint venture the right move for the Malvern, Pa.-based fund giant? Only time will tell. And another unknown: As a Vanguard investor outside of China, what do you have to gain from all of this? It’s not as if the firm doesn’t already have immense scale and ultra-low costs. And the decision to not pursue its own local funds underscores the potential limitations of Vanguard’s unique construct of being owned by the investors in its funds—there’s less room for costly missteps since it has to reinvest and keep costs low for shareholders.

The fund titan is calling this a “pause,” not a retreat. We’ll be watching and will keep you abreast of any developments.

Podcast: Making the Most of Equity Compensation

Equity compensation is becoming a bigger part of people’s paychecks in many industries—but making the most of this important wealth-building tool can be fraught with complexity. Fortunately, Andrew Busa and JonPaul McBride from our financial planning team are here to demystify the ins and outs of equity comp, including:

• Key terms to understand when it comes to stock options
• Non-qualified stock options (NSOs) vs. incentive stock options (ISOs)
• How options are taxed—and how to decide when to exercise them
• Trading windows and blackout periods

Click here to listen now and ensure you’re making the most of the investment opportunity equity compensation gives you. Please stay tuned for more podcast content from us on this timely topic—and consult our primer on equity compensation to learn more.

Adviser Investments’ Today’s Market Takeaways

There’s no shortage of hyperbolic headlines and provocative punditry in the financial media. But you won’t find such hysterics here. In Today’s Market Takeaways, members of our investment team provide timely videos that clearly and concisely explain what we’re seeing in the markets.

Recently, Research Analyst Liz Laprade talked about non-fungible tokens, the latest digital investment fad currently commanding high prices. And Vice President Steve Johnson reflected on what a difference a year makes.

We hope you find these episodes engaging and accessible, and please let us know if there are any topics you’d like to hear us address by sending an email to info@adviserinvestments.com!

About Adviser Investments

Adviser Investments is a full service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994, and have more than 3,500 clients across the country and over $6 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, with particular expertise in Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To.

Our minimum account size is $350,000.  To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.