The Consolidated Appropriations Act of 2021: Tax Changes and Impacts
Last week, we spotlighted some of the most important provisions from the recently signed Consolidated Appropriations Act of 2021. Beyond the stimulus payments, additional round of PPP, and other forms of relief for individuals and businesses, the Act also made changes to several tax provisions and extenders. Here are a few of note:
COVID-19-Related Tax Relief Act
Includes extensions and expansions of tax relief established earlier in the year under the Families First Coronavirus Response Act and the CARES Act; added some new provisions and is focused on providing tax relief to taxpayers who have suffered medical or economic hardships due to the COVID-19 pandemic. You can review a briefing of the CARES Act here.
Deferred Payroll Taxes
Extends the payback period of employee’s deferred payroll taxes to December 31, 2021, with penalties and interest on the deferred taxes beginning to accrue on January 1, 2022. You can access the IRS Guidance that was issued regarding social security tax deferral here.
Teacher Expenses
Requires that personal protective equipment and other supplies used to prevent the spread of COVID-19 qualify for the above-the-line educator expense deduction.
PPP and Business Expenses
Provides that business expenses paid with forgiven PPP loans can give rise to a deduction.
Exclusions of Grants and Loan Forgiveness
Clarifies that certain financial aid received by college students under the CARES Act, as well as forgiveness of EIDL granted to small businesses under the CARES Act are excluded from income
Tax Credits
Extends the covered period of the employer credit for paid sick and family leave (originally part of the Families First Coronavirus Response Act) to March 31, 2021
Extends the employee retention tax credit to apply to compensation paid to a covered employee (originally part of the CARES Act) through June 30, 2021
Temporary change in the calculation of the earned income tax credit: where there is a reduction in income from tax year 2019 to 2020, the credits for the 2020 tax year can be calculated using income information for the 2019 tax year.
Check out the IRS guide to COVID-19 Employer Tax Credits.
Coronavirus-Related Distributions from Retirement Plans
For qualified coronavirus-related distributions from a retirement plan, the CARES Act waives the 10-percent additional tax. In addition, applicable distributions can be included in gross income over a three-year span and eligible individuals have three years to repay the amount.
Taxpayer Certainty and Disaster Tax Relief Act of 2020
In an effort to encourage taxpayers to support charities during the pandemic, the CARES Act included the following changes, which have now been extended through 2021 under the new law:
the limitation on certain charitable contributions was increased from 60 percent of the contribution base to 100 percent (for individuals who itemize)
for taxpayers using the standard deduction, up to $300 (or $600 for people filing jointly) of cash contributions to public charities can be deducted
the percentage limitation on charitable contribution deductions for corporations was raised from 10 percent to 25 percent for qualified cash contributions
More details can be found on IRS.gov.
Business Meals Deduction
For 2021 and 2022, business deductions for meals are making a comeback. The business meal deduction allows businesses to deduct the full amount of meals, including beverages, when provided at a restaurant.
Tax Breaks (Extenders)
Several tax breaks that were set to expire at the end of 2020 (tax breaks commonly referred to as ‘extenders’) have been extended through 2025. Others have been extended by different lengths or on different terms, for example:
Through 2025: the new markets tax credit, the exclusion from gross income of the discharge of qualified principal residence debt, etc.
Through 2021: Many provisions, ie. deduction for mortgage insurance premiums and several energy credits
Made permanent: 7.5 percent floor on the deduction of medical expenses
Not extended beyond 2020: the deduction of tuition and fees
Additional tax breaks have been extended or made permanent with some modifications. You can view a full list here.
This briefing is for the purpose of providing general information only and is neither tax nor legal advice. For more information or a consultation regarding tax planning for 2021 and beyond, please reach out to your advisor at The Doty Group or e-mail info@dotygroupcpas.com.
