Signed into law late last year, The Consolidated Appropriations Act, 2021, contains a number of Covid-related relief provisions for individual taxpayers. Here are some of the key ones:
Economic impact payments. $600 per taxpayer ($1,200 for married taxpayers filing jointly) and an additional $600 per qualifying child (under age 17). The recovery rebate payment begins to phase out starting at $75,000 of modified adjusted gross income for single filers, $112,500 for heads of household and $150,000 for married taxpayers filing jointly. These payments are similar to the ones many taxpayers received earlier this year under the CARES Act.
Unemployment benefits. Additional unemployment insurance in the amount of $300 has been extended for an 11-week period beginning Dec. 26, 2020.
Educator expenses. Clarification that personal protective equipment (PPE) used for the prevention and spread of Covid-19 will be treated as a deductible expense, retroactive to March 12, 2020.
Charitable contributions — Nonitemizers. The $300 above-the-line deduction for cash contributions given to a qualified charitable organization is extended through 2021 and increases to $600 for married taxpayers filing joint returns. In 2020, the maximum amount was $300.
Charitable contributions — Itemizers. The increased contribution limit to qualified charities that was specified in the CARES Act is extended through 2021 and applies to individuals and corporations. Amounts of up to 100 percent of adjusted gross income (AGI) are allowed as deductions (same as 2020). In 2019, the limit for the deduction for cash contributions was 60% of AGI.
Earned Income. For the 2020 tax year, taxpayers may use earned income amounts from the immediately preceding tax year when figuring the Earned Income Tax Credit and the Additional Child Tax Credit.
Flexible spending arrangements. Taxpayers can roll over unused amounts from 2020 to 2021 and from 2021 to 2022 and employers may allow employees to make a contribution change mid-year in 2021.
Money purchase pension plans. The Covid-related Tax Relief Act of 2020 also allows money purchase pension plans to be included as a qualified retirement plan, retroactive to the CARES Act. The CARES Act allowed taxpayers to make penalty-free withdrawals of up to $100,000 from certain retirement plans for coronavirus-related expenses, with the option to pay tax on that income over a three-year period or recontribute withdrawn funds.
This column is for informational purposes only and is not intended as advice. Taxes are often complex and mistakes can be costly, so consider seeking professional assistance on tax matters.
Norm Grill, CPA, (N.Grill@GRILL1.com) is managing partner of Grill & Partners, LLC (www.GRILL1.com), certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien, 203-254-3880.