Just before breaking for the holidays, Congress passed the $900 Billion Coronavirus Response and Relief Supplemental Appropriations Act of 2021 to help households, retirees, small and large businesses, and to provide further aid in vaccine distribution. Here are some important highlights:
Economic Impact Payments
$600 per adult, and $600 per child, based on income as reported on your 2019 tax return. Phase out limits occur for individual filers with incomes over $75,000, or $150,000 for couples, and $112,500 for head of household filers. Above these thresholds, the phase out is a decrease of $5 for every $100 of additional income. The payment hits zero for individuals at $87,000 and $174,000 for couples. This same phase out applies to dependent children’s benefit of $600. For those expecting a payment without direct deposit information on file with the IRS, be on the lookout for a mailing containing a check or debit card. You can also inquire via https://www.irs.gov/coronavirus/get-my-payment
It’s important to note these payments are not taxable income.
Unemployment benefits that were halted the day after Christmas will continue. This includes contract and gig economy workers, plus those who have exhausted or experienced expired benefits such as state-run programs. An additional 13 weeks of benefits will be provided and the Act extends the unemployment subsidies to a maximum of 50 weeks from the prior limit of 39 weeks.
A $300 per week unemployment subsidy is an additional benefit of the Act.
The Act offers access to a more expansive Employee Retention Tax Credit (potentially up to $7,000 per employee per quarter) if the business had a 20% decline in quarterly revenue. The Paycheck Protection Program (PPP) extends the forgivable loan opportunity if revenue was down at least 25% in any 2020 quarter. Those who applied initially can reapply. If a business missed out last year, a new window opens to apply. Loan forgiveness is easier to attain. The rules for meeting loan criteria to have funding be deductible will also be easier come tax filing time.
The IRS is due by February 28, 2021 to provide details for teachers’ allowance to deduct for COVID-19 protective supplies, disinfectant, personal protective equipment, plus other related items meant to protect themselves and classroom participants. The above the line Adjusted Gross Income (AGI) maximum deductible amount is expected to be maintained at $250.
In the weeds of the Appropriations Act are a myriad of deductions such as business tax credits for keeping employees through the PPP. The Act enables 100% deductibility for business meal expenses provided at restaurants (including take out) incurred during 2021 and 2022. The 50% deduction limitation applicable last year and in the many years prior, will again be effective in 2023.
For employers that participated in the voluntary tax holiday, the employee portion of the Social Security payroll tax deferral repayment period was extended until December 2021. The original payback period ran through the first four months of 2021.
Individuals that do not itemize their deductions can deduct up to $300 in charitable contributions in 2021. Originally, this was solely allowed for 2020 returns. The 100% AGI limit for cash contributions to a qualified charity, which was also set to expire at the end of 2020, is extended through 2021 with Joint filers eligible to deduct up to $600. This deduction does not apply to Donor Advised Fund contributions.
The payroll tax credits for paid sick and family leave provided by the Families First Coronavirus Response Act are extended through March 31, 2021.
If you participate in a Flexible Spending Account (FSA), check with your Human Resources department to see if your plan is going to allow unused funds to carryover from last year to this year and will do likewise for 2021 to 2022. The Act is now allowing this with endorsement from the IRS.
On the “flip side”, the Act made permanent the medical expense deduction 7.5% of AGI, lowered from 10.5%. This is an important item for those with family in nursing homes or with other significant care-based expenses. Be sure to check IRS Publication 502 which contains a useful list to reference in itemizing these expenses.
Provisions that were Not Extended
Required Minimum Distributions (RMD) were waived in 2020, however they are expected to resume in 2021. This includes continued availability to utilize Qualified Charitable Distributions (QCD) to meet your RMD requirement.
Federally backed Student Loan Relief extended last year to January 31, 2021 has not been extended by the Appropriations Act of 2021.
With the incoming White House administration already advocating for additional stimulus, we would not be surprised to see additional changes to the details for all these programs. Please consult with your CPA or tax professional regarding your specific tax circumstances, or please contact your Osborne Partners Portfolio Counselor about any changes impactful to your financial situation for 2021 and beyond.