On December 27, President Trump signed the Consolidated Appropriations Act, 2021 (the “Act”) into law, after initially sending it back to Congress over his displeasure with the amount of stimulus payments.
The Act combines $900 billion in stimulus relief for the COVID-19 pandemic with a $1.4 trillion spending package for the 2021 fiscal year. The legislation is the first to address the COVID-19 pandemic since April 2020.
Below is a high-level summary of the most notable provisions.
Direct Stimulus PaymentsThe most widely publicized portion of the law is the second round of direct payments. This provides $600 per individual and another $600 each for child dependents. The payments are a credit against 2020 taxes and phase out for individuals with a 2019 adjusted gross income exceeding $75,000 ($150,000 for joint filers).1
Payroll Tax DeferralThis provision extends the 2020 payroll tax deferral (employee share) from April 30, 2021 to December 31, 2021.2
Teacher ExpensesThe Act directs the Treasury to issue regulations providing that personal protective equipment and other supplies related to preventing the spread of COVID-19 qualify for an above-the-line deduction (no requirement to itemize to deduct against income).3
Paycheck Protection Program (PPP) ExpensesThe IRS previously issued Notice 2020-32, which precluded businesses from deducting expenses that were paid for with funds forgiven from the PPP. This Act indicates that the intent of the original legislation was for these expenses to be deductible, and therefore, expressly allows for such.4
Charitable ContributionsThe CARES Act temporarily increased the itemized deduction limitation for cash contributions from 60% of adjusted gross income to 100%, allowed for a $300 above-the-line deduction to taxpayers utilizing the standard deduction, and increased the corporate limitation from 10% of taxable income to 25%. This Act extends those provisions through 2021.5
MealsTo help the severely impacted dining industry, the business deduction for meals (including beverages) will be 100% (vs. 50%) for 2021 and 2022.6
ExtendersIncluded in the Act was the annual package that extends or makes permanent provisions that were set to expire at the end of the year. A couple notable examples are the 7.5% medical expense limitation that was made permanent and the extension through 2021 of deductions for mortgage insurance premiums along with a handful of energy credits.
It’s worth noting that the waiver on required minimum distributions (RMDs) for 2020 was not extended in the Act. Therefore, beneficiaries subject to the RMD rules will need to account for them in 2021.
1Code Sec. 6428(a) and COVIDTRA Sec. 272
2COVIDTRA Sec. 274
3Code Sec. 62(a)(2)(D)(ii)
4H.R. 133 Sec. 276
5TCDTR Sec. 212 and TCDTR Sec. 213
6TDCTR Sec. 210
7Code Sec. 213(a)
8Code Sec. 163(h)(3)(E)(iv)(I)
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