News

Consolidated Appropriations Act, 2021

 

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INDIVIDUAL PROVISIONS 

  • Stimulus payments of $600 ($1,200 for joint returns) plus $600 per qualifying child will be made to individuals, with phaseouts starting at the same levels as the payments made under the CARES Act ($75k single or MFS, $150k MFJ, $112.5k HH).
  • Additional $300 a week of federal unemployment insurance until 03/14/21
  • Certain Provisions Made Permanent
  • Medical Expenses: Deductible in excess of 7.5% of AGI (was set to go to 10% in 2021)
  • Education Deductions/Credits
  • Deduction for tuition & related expenses is repealed effective 1/1/2021
  • Lifetime Learning Credit income threshold for phaseouts now starts at $80k ($160k for joint returns). This aligns with the American Opportunity Tax Credit phaseout, effective 1/1/2021. 
  • Certain Provisions Extended through 2025 (aligns with TCJA sunset)
  • Discharge of Qualified Principal Residence Indebtedness will continue to be excluded from gross income through 12/31/2025, but the maximum levels of indebtedness taken into account is reduced. 
  • Employer payments toward student loans will be considered non-taxable educational assistance, up to $5,250 per year, through 12/31/2025. 
  • Extension of Certain Other Provisions
  • Mortgage Insurance Premiums continue to be deductible through 12/31/2021 for those who itemize, subject to income phaseouts starting at $100k ($50k if married filing separate). 
  • Charitable contributions
  • Non-itemizers can deduct up to $300 ($600 for joint returns) for tax years beginning in 2021 provide they are made in cash to a public charity (no supporting organizations or DAFs). 
  • For itemizers, deduction up to 100% of AGI for cash contributions to public charities (no supporting organizations or DAFs) is extended through 2021, after which it returns to 60%. 
  • Child credit is modified to use 2019 income 
  • Flexible Spending Accounts for healthcare or dependent care can allow unused benefits from 2020 to roll to 2021 and 2021 to 2022, with the grace period extended to 12 months from the end of the plan year. 
  • If a dependent aged out during the pandemic, use of dependent FSA funds is permitted up to age 14 rather than the usual age 13. 
  • FSAs can also allow employees to change their contribution elections outside of open enrollment for plan years ending in 2021. 
  • Amends qualified disaster distributions, which are amounts up to $100,000 taken by a retirement plan participant whose main home was in the federally declared disaster area. The $100k applies per disaster. Such distributions are taxed over 3 years and can be repaid within 3 years, similar to the coronavirus-related distributions permitted under the CARES Act. 
  • This does NOT apply if COVID-19 is the only disaster. 
  • A qualified individual (main home in the disaster area or experienced economic loss due to the disaster) can borrow up to the lesser of $100,000 or 100 percent of the account balance, instead of the normal $50,000 and 50-percent limits. Victims may also have an extra year to make payments due on current loans.
  • This does NOT apply if COVID-19 is the only disaster. 

BUSINESS PROVISIONS 

  • Paycheck Protection Program (PPP) or PPP2. Some salient points:
  • $284B
  • Second PPP loan is available
  • <300 employees with 25% decline in revenue for any quarter 2020 compared to the same quarter in 2019
  • §§501(c)(6) that have <150 employees and are not engaged in lobbying are now eligible 
  • Costs include property damage, supplier costs and PPE for workers
  • Max loan is $2M
  • Business expenses associated with PPP are deductible (old loans and new loans)
  • Loan forgiveness for loans under $150K are simplified
  • Funding for Live venue operators, like movie theaters and museums
  • New EIDL grants ($20B)
  • Payroll tax deferral extended to 12/31/21
  • Employee Retention Tax Credit (ERTC) is extended to 07/31/21. Now 70% of wages paid up to $10,00 for any quarter. Can use the ERTC and the PPP.
  • Business meals now 100% deductible for 2021 and 2022 (rather than 50%)
  • 5-year extension (to coordinate with TCJA) of certain provisions, including
  • New Markets Credit
  • Work Opportunity Credit 

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