Getting the Most Out of the Consolidated Appropriations Act of 2021
As the coronavirus vaccine began to roll out, providing a light at the end of the COVID-19 tunnel, Congress passed a $900 billion relief package and government funding bill at the end of 2020, providing emergency relief to individuals and businesses by extending timeframes to several provisions from the earlier CARES Act. While the headline news was the $600 payment to individuals, there are many other provisions that you may be able to take advantage of.
Several provisions around charitable contributions that were set to expire at the end of 2020 have now been extended through the end of 2021. The CARES Act had allowed individuals who do not itemize deductions to take an above-the-line deduction for charitable cash contributions of up to $300 on their 2020 tax return. If you do itemize, the 60 percent adjusted gross income limitation for cash charitable contribution deductions is suspended, allowing you to deduct up to 100 percent of your 2020 adjusted gross income. Both of these rules are now in effect through the end of 2021. The act also says that the allowable above the line deduction for joint returns is $600 for tax years beginning in 2021, but makes no reference to the 2020 tax year, so stay tuned for more guidance on that.
Several unemployment assistance programs set to expire at the end of 2020 have also now been extended. The Pandemic Unemployment Assistance program provided payments to self-employed individuals and independent contractors who are not traditionally eligible for unemployment benefits, and the Pandemic Emergency Unemployment Compensation program provided an extra 13 weeks of payments to individuals who had exhausted their regular state unemployment. Both benefits had been set to expire at the end of the year but are now extended to March 14th, 2021. The Federal Pandemic Unemployment Compensation program, which provided an additional $600 unemployment payment per week and expired at the end of July, has also been reinstated starting December 26th at $300 per week for an additional 11 weeks, which means it’s now scheduled to expire on March 14th, 2021.
The new act created a special lookback provision for the Earned Income Tax Credit and the Child Tax Credit for the 2020 tax year. If you want to take these credits for 2020, you can use your higher, 2019 earned income as opposed to 2020 if it allows for a larger credit. The act has also temporarily reinstated the increased business deduction for meals, allowing you to deduct 100 percent of the cost of meals and beverages provided by a restaurant for tax years 2021 and 2022. Several tax benefits provided in previous, non-coronavirus related tax bills have also been made permanent. The medical expense deduction floor is decreased from 10 percent to 7.5 percent for tax years after 2020, and the deduction for qualified tuition and related expenses is permanently repealed beginning in 2021.
Economic Impact Payments
Similar to the $1,200 stimulus payments in the CARES Act, checks up to $600 will be issued to qualifying individuals, both adults and children, meaning a family of four could receive up to $2,400. As was the case in the first round of payments, the $600 payment will be reduced by 5 percent of your adjusted gross income that exceeds $150,000 for joint returns, $112,500 for head of household returns, and $75,000 for single returns. So the payment is fully phased out at an AGI of $174,000 or more for married filers and $87,000 or more for single filers. When you file your 2020 income tax return, the payment amount will be recalculated based on your 2020 adjusted gross income.
The bill also includes a retroactive provision where the direct payments, including those provided in the CARES Act, will be provided to mixed-status immigrant households. This is especially important to a lot of families since the first round of payments was restricted to American citizens or resident aliens.
What's Not Included
Rumors had circulated regarding the extension of other CARES Act provisions, such as the RMD waiver and the deferral of student loan payments, but these were not included in the Consolidated Appropriations Act of 2021. If you were hoping to take further advantage of these provisions, you will need to keep an eye out for additional relief bills passed in 2021.
A full copy of the bill can be found on Congress.gov.