On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law. The CAA contains both the COVID-Related Tax Relief Act of 2020 (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR). In addition to providing for stimulus payments of $600 per taxpayer and qualifying child, the CAA also contains numerous tax provisions and extenders.
In addition, on March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law,1 the third phase of legislation aimed at fighting the COVID-19 pandemic and mitigating the related economic harm for families, workers, and businesses. The CARES Act, among other things, provided tax relief for businesses and individuals.
Provisions of both legislation include the following.
- Charitable cash contributions of up to $300 are allowed as an above-the-line deduction. If a taxpayer does not itemize, the taxpayer can take a charitable deduction up to $300 for cash contributions made in 2020 to organizations that are religious, charitable, educational, scientific or literary in purpose.
- Qualified individuals can receive special tax treatment for coronavirus-related distributions, up to $100,000, made from eligible retirement plans between January 1 and December 30, 2020 (before December 31, 2020). A coronavirus-related distribution can be included in income over three years and could potentially be recontributed to an eligible retirement plan within three years. Also, the 10% additional tax for distributions before age 59 1/2 does not apply.
- Eligible parents who welcomed a new baby in 2020 and haven’t received an economic impact payment for their child as a dependent could qualify for up to $1,100 of extra stimulus money, Children born between Jan. 1 and Dec. 31 of 2020 qualify for both stimulus payments if their parents meet income limits: $500 from the first check and $600 from the second round. To get this stimulus payment you will need to file your 2020 tax return.
- Expanded business meals deduction allowing 100% business expense deduction for meals, increased from the current 50%. The provision stipulates that the expenses must be used for food or beverages provided by a restaurant. This provision is aimed at helping the struggling hospitality industry, which has been hit hard by the pandemic. The expanded meals deduction is effective for expenses incurred after December 31, 2020 and expires on December 31, 2022.
The legislation makes permanent certain expiring tax incentives and provides temporary extensions (for varying periods of time) for other expiring provisions.
Selected provisions that are made permanent include:
- Reduction in medical expense deduction floor for medical expenses that exceed 7.5% of adjusted gross income, decreased from the historic 10%.
- An increase in income limitations for phaseout of the lifetime learning credit and a repeal of deductions for qualified tuition and related expenses.
Selected provisions extended for one year include:
- Treatment of mortgage insurance premiums as qualified residence interest;
- Non-business energy property credit;
- Qualified fuel cell motor vehicle rules for alternative motor vehicles credit;
- Alternative fuel refueling property credit;
- Two-wheeled plug-in electric vehicle credit.
Selected provisions that are extended for five years (through 2025) include:
- Exclusion from gross income of discharge of qualified principal residence indebtedness (with reduction in maximum acquisition indebtedness taken into account);
- Exclusion from gross income for certain employer payments of student loans.
Certain provisions extended for three years (through the end of 2023) include:
- Energy credit, with adjustments to phase-out schedules;
- Residential energy-efficient property credit, with addition of rules for inclusion of biomass fuel property expenditures.