Part of the Consolidated Appropriations Act of 2021 (CAA)
What You Need to Know
The Taxpayer Certainty and Disaster Tax Relief Act of 2020, a part of the Consolidated Appropriations Act of 2021, was signed into law by then-President Trump on December 27, 2020. Containing $900 billion in pandemic relief, here are some highlights of the tax changes for individuals and small businesses:
- Stimulus Payment. $600 per individual and any qualifying dependent child, phasing out when incomes exceed $75,000 for individuals, $112,500 for head of household and $150,000 for joint filers. This amount may be followed up with more as President Joe Biden has also proposed a $1.9 trillion coronavirus relief plan which includes a round of stimulus checks of an additional $1,400 for most Americans.
- Unemployment Extension. Additional $300 per week of PUA (Pandemic Unemployment Assistance) for 11 additional weeks, expiring March 14, 2021.
- Medical Expense Deduction. Individuals can deduct medical expenses that exceed 7.5% of their adjusted gross income (AGI), if they itemize. This 7.5% has now been permanently restored, in place of the sometimes 10% threshold.
- FSAs (Flexible Spending Accounts). Account balances can be carried forward into 2021 if not fully used in 2020. Please contact your human resources department, as each company may handle things differently. Some plans may also allow participants to change their contribution level during the year, which had previously not been allowed.
- Charitable Giving for those taking the Standard Deduction. The CARES Act in 2020 previously allowed for a $300 above-the-line charitable deduction for those that do not itemize. This has now been extended to 2021 and expanded to allow $600 for a joint filer in 2021 but keeps the $300 cap for 2020.
- Charitable Giving for those that Itemize Deductions. The CARES Act in 2020 previously allowed for a deduction of up to 100% of AGI for cash charitable donations in 2020, and this was extended for 2021.
- Payroll Taxes Repayment Date Extended. 2020 Payroll taxes had previously been deferred to early 2021 and have now been extended until December 31, 2021 to repay deferred payroll taxes.
- Business Meals are 100% Tax-Deductible. Businesses are allowed a 100% deduction for meals in 2021 and 2022. This is up from the previous 50% tax-deduction level.
- Lifetime Learning Credit is Expanded. The tuition and related expenses deduction is being replaced by an expanded lifetime learning credit in 2021. The phaseout will align with the American Opportunity Tax Credit at $80,000-$90,000 for single filers and $160,000-$180,000 for joint filers.
- Earned Income Tax Credit and Additional Child Tax Credits are expanded. Individuals will be allowed to use their 2019 earned income, if greater, to calculate these credits for 2020.
- Employer Payments of Student Loans. Extended through 2025, employers can provide up to $5,250 annually for tax-free education assistance to pay off an employee’s qualified student debt.
- Qualified Principal Residence debt forgiveness exclusion is extended through 2025. For those who go through a short sale, the forgiven debt on a primary residence may be excluded from income through 2025. Starting in 2021, the maximum amount is reduced to $750,000 for joint filers (from $2 million) and $375,000 for single filers (from $1 million).
- RMDs. There is no change to Required Minimum Distributions (RMDs). They are back to “normal” and must be taken again in 2021.
- Expansion of the Employee Retention Credit (ERC). The CARES Act provided for a tax credit to certain companies who continued to pay employees during the coronavirus lockdown. This is expanded and extended through June 30, 2021.
- PPP Round 2. The Consolidated Appropriations Act also reopened the Paycheck Protection Program (PPP) to allow for additional loans to qualifying small businesses until March 31, 2021.
As the pandemic continues to cause financial challenges for businesses and individuals nationwide, relief programs offer some assistance. As previously mentioned, additional stimulus is currently being negotiated in Congress and we will keep you updated. Please contact us if you have any questions.
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