CAA Provides Relief to Individuals and Businesses
On Sunday, December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA 2021) was signed into law. It is intended to assist individuals and businesses during the ongoing pandemic and accompanying economic crisis. Major relief provisions are summarized here, as well as some additional tax provisions.
Unemployment provisions
The legislation provided an extension to unemployment benefits:
An additional $300 weekly benefit to those collecting unemployment benefits, through March 14, 2021
An additional 11-week extension of federally funded unemployment benefits for individuals who exhaust their state unemployment benefits
Unemployment benefits through March 14, 2021, for many who would not otherwise qualify, including independent contractors and part-time workers
Recovery rebates
Most individuals will receive another direct payment from the federal government. Technically a 2020 refundable income tax credit, the rebate amount will be calculated based on 2019 tax returns filed and sent automatically via check or direct deposit to qualifying individuals. To qualify for a payment, individuals generally must have a Social Security number and must not qualify as the dependent of another individual.
The amount of the recovery rebate is $600 ($1,200 if married filing a joint return) plus $600 for each qualifying child under age 17. Recovery rebates are phased out for those with an adjusted gross income (AGI) exceeding $75,000 ($150,000 MFJ).
Business relief
Paycheck protection program (PPP) loans have been extended and the allowable uses (eligible expenses) of the loan expanded. A PPP loan amount can be forgiven for paying certain expenses, and such amount is not included in income.
The employer tax credit for providing emergency sick and family leave has been extended through March 31, 2021. For 2021 and 2022, a full deduction is now allowed for business meals provided by a restaurant.
Charitable giving
Many of the charitable giving provisions for 2020 have been extended into 2021, including:
For those who itemize deductions, the limit on the charitable gifts deduction has been increased to 100% of AGI for direct cash gifts to public charities.
For those taking the standard deduction, a $300 (increased to $600 in 2021 for joint returns) charitable deduction for direct cash gifts to public charities is available (in addition to the standard deduction).
Other tax provisions
The medical expense deduction has been permanently lowered to 7.5% of AGI (it was scheduled to increase to 10% in 2021).
Starting in 2021, the deduction for qualified tuition and related expenses has been repealed. To make up for it, the modified adjusted gross income (MAGI) phaseout range for the Lifetime Learning Credit has been increased to be the same as the phaseout range for the American Opportunity Tax Credit.
Mortgage insurance premiums can be deducted as qualified residence interest through 2021
The energy efficient home credit was extended through 2021
There are many aspects of this tax law that affect not only your 2020 tax return but future returns as well. We will make sure to notify you if there are any provisions that need to be scrutinized more carefully. Please call our office with any questions.