Individual’s Guide to the 2021 Consolidated Appropriations Act
The 2021 Consolidated Appropriations Act (CAA), signed into law on December 27, 2020, provides another round of COVID-19 relief for taxpayers and extends several tax provisions, including several key provisions that affect individual taxpayers.
Here's what individual taxpayers can expect:
Eligible individuals will receive additional 2020 recovery rebate credits (advanced economic impact payments) of up to $600 per taxpayer and qualifying child. The recovery rebate credit is phased out for taxpayers with adjusted gross income (AGI) beginning at $75,000 for single filers, $112,500 for head of household, and $150,000 for married filing jointly filers. These advance payments will be calculated using 2019 tax information. However, if 2020 tax information results in a larger recovery rebate credit, as computed on your 2020 tax return, the additional amount will be reported as a refundable credit on your 2020 federal return.
Lower-income earners can use 2019 or 2020 earned income for eligibility and calculation of the Earned Income Tax Credit and refundable portion of the 2020 Child Tax Credit. This may allow a larger 2020 refund for taxpayers who suffered a decrease in earned income in 2020 due to the COVID-19 pandemic.
Individual taxpayers who took advantage of the deferral of their employee share of Social Security tax under the executive order from April 20, 2020, will now have until December 31, 2021, for their employer to withhold and pay in these payroll taxes.
Qualified unemployed individuals will continue to receive the additional $300 per week in federal unemployment benefits through March 14, 2021.
Self-employed individuals can take advantage of the extension of the Families First Coronavirus Response Act’s refundable tax credit provisions for paid sick and family leave related to COVID-19. The credit is now available through March 31, 2021.
Client-related business meals provided by a restaurant will be 100 percent deductible for tax years 2021 and 2022.
Unreimbursed medical expenses are only deductible above an AGI threshold percentage. The current 7.5 percent was set to increase to 10 percent for 2021. CAA permanently sets the AGI threshold to 7.5 percent.
There are some changes related to education deductions and credits. The deduction for qualified tuition and related expenses was allowed to expire at the end of 2020. Instead, the modified AGI (MAGI) limitation for the Lifetime Learning Credit has been increased under CAA to the same limitation amounts for the American Opportunity Credit. The phaseout of the credits begins at MAGI of $80,000 for single filers and $160,000 for married filing jointly filers. The credits are fully phased out when taxpayers reach MAGI of $90,000 ($180,000 for married filing jointly). This change is effective for tax years beginning after December 31, 2020.
If a taxpayer does not itemize for 2020, they will be allowed to take a $300 “above-the-line” charitable donation deduction in computing AGI. This $300 charitable deduction applies the same if the taxpayer has a filing status of single or married filing jointly. For 2021, the CAA will allow a deduction after AGI but before the standard deduction for non-itemizers in the amount of $300 related to qualified charitable donations for single taxpayers and $600 for married filing jointly filers. The donations must be made in cash and to a public charity or foundation.
There are limitations on the amount of charitable donations an individual can deduct against income each year. For 2020, the Coronavirus Aid, Relief, and Economic Security Act suspended the 60 percent AGI limitation for direct cash contributions to public charities allowing donation deductions for these qualified contributions up to 100 percent of AGI. The CAA extends the increased AGI limitation for tax year 2021.
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