The Consolidated Appropriations Act, 2021, H.R. 133, passed by both houses of Congress on December 21, 2020 and signed into law on December 27, 2020 contains, among others, many COVID-19 related provisions:
- A second round of direct cash assistance payments of $600 for each family member, subject to certain family adjusted gross income limitations, with mixed-status families now eligible where only one spouse has a social security number;
- Eligibility to use 2019 income to determine the earned income tax credit (EITC) and the additional child tax credit (ACTC). Because of the COVID-19 pandemic, the earned income of many low-income taxpayers declined dramatically during 2020. This would ordinarily result in a reduction in their EITC and CTC credits, estimated to up to an 80 percent decrease for some taxpayers. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 permits taxpayers to substitute their earned income for 2019 if it is greater than their earned income for 2020;
- A permanent reduction in the adjusted gross income threshold for medical expense deductions from 10 percent to 7.5 percent;
- The $300, above-the-line, charitable deduction for cash contributions by non-itemizers to qualified charities during 2020 added by the CARES Act is extended to joint filers in 2021 by the Taxpayer Certainty and Disaster Tax Relief Act of 2020. The deduction is $600 for married non-itemizers who file jointly, but for 2021 only.
- Additional unemployment assistance which provides 11 weeks of $300 per week emergency unemployment benefits, an extension of expiring pandemic-related unemployment assistance, and protection for individuals who received pandemic-related unemployment benefit overpayments through no fault of their own and are now unable to repay the funds;
- The tuition and fees deduction expired at the end of 2020. There is now an increase in the income threshold at which the Lifetime Learning Credit phases out. The 2020 lifetime learning credit phaseout range is $59,000 to $69,000 for single filers, and $118,000 to $138,000 for joint filers. Starting in 2021, the lifetime learning credit phaseout range will be $80,000 to $90,000 for single filers, and $160,000 to $180,000 for joint filers. This is the same as the American opportunity tax credit phaseout range;
- A three month extension of credits reimbursing employers for paid sick and family leave paid to employees due to Covid-19;
- An expansion of the carryover and grace period policies relating to employees with unused amounts in their health and dependent care flexible spending accounts;
- An extension and expansion of the employee retention tax credit;
- The credit rate is increased from 50% to 70% of qualified wages;
- There is an increase in the limit on per employee creditable wages from $10,000 for the year to $10,000 for each quarter;
- The creation of a Paycheck Protection Program (PPP) Second Draw loan program with a maximum loan amount of $2 million made available for businesses that employ 300 or less employees and have used, or will use, the full amount of their first PPP loan;
- Forgiven PPP loans used to pay business expenses are deductible;
- There are rules allowing new employers who were not in existence for all or part of 2019 to be able to claim the credit;
- There is a provision to allow certain governmental employers to claim the credit;
- There is an increase from 100 to 500 in the number of employees counted when determining the relevant qualified wage base;
- Employers could use a safe harbor provision to use prior-quarter gross receipts to determine eligibility;
- Additional time for employees and employers to pay back deferred employee payroll tax amounts from the President’s August memorandum;
- There is reduction in the required year-over-year gross receipts decline from 50% to 20%;
- Teachers of kindergarten through grade 12 are eligible to take an above-the-line deduction of up to $250 for books, supplies, and other equipment they purchase with their own money for use in the classroom. The COVID-related Tax Relief Act adds to this deduction to expenses for personal protective equipment (PPE), disinfectant, and other supplies used to prevent the spread of COVID-19 after March 12, 2020;
- Permanent and temporary extensions of expiring tax provisions;
- A 100 percent deduction for business meal and beverage expenses, including any carry-out or delivery meals, provided by a restaurant that are paid or incurred in 2021 and 2022.
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