Knowledge and Insights
The Consolidated Appropriations Act of 2021 has been passed by Congress and was signed by the President last Sunday, December 27th. The bill is very large and contains over 5,600 pages. It includes the COVID-Related Tax Relief Act of 2020 (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), which contain numerous tax-related provisions and extensions of several expiring tax provisions.
Some of the more noteworthy tax related provisions included in these Acts include:
- Additional recovery rebates in the amount of $600 per eligible family member phasing out at incomes beginning at $75,000 for single individual ($150,000 if married filing jointly).
- Allows amount spent on PPE to qualify for $250 above the line deduction for eligible educators.
- Clarifies that otherwise deductible expenses paid with proceeds of Payroll Protection Program (PPP) Loans (including prior and new PPP Loans) are fully deductible without any corresponding reduction in tax basis of assets or other tax attributes.
- Excludes certain CARES Act emergency financial aid grants from the gross income of college and university students.
- Clarifies that gross income does not include forgiveness of Economic Injury Disaster Loans (EIDL) and deductions are allowed for otherwise deductible expenses paid with the amounts are not included in income.
- Allows for in services distributions from money purchase pension plans for coronavirus related distributions without penalty.
- Makes the 7.5% threshold to claim a deduction for medical expenses (was scheduled to increase to 10%).
- Makes Energy Efficient Commercial Building Deduction permanent.
- Makes exclusion for qualified state and local tax benefits paid to members qualified volunteer emergency response organizations (generally volunteer firefighters and emergency medical responders).
- Transition from deduction for qualified tuition and related expenses to increased income limitation on Lifetime Learning Credit.
- Raises the current 50% business expense deduction for meals to 100%, on the condition that the expense is for food or beverages provided by a restaurant. This will be effective for such expenses incurred after December 31, 2020 and expire at the end of 2022.
- Extends look-thru rules for related Controlled Foreign Corporations through 2025.
- Extends New Market Tax Credit for an additional 5 years (now through 2030).
- Extends Work Opportunity Credit through 2025.
- Extends exclusion for discharge of Qualified Principal Residence Indebtedness through 2025.
- Extends the period for which the designation of an empowerment zone is in effect through 2025.
- Extends Employer Credit of Paid Family and Medical Leave through 2025.
- Extends exclusion for certain employer payments of Student Loans through 2025.
- Extends treatment of mortgage insurance premiums as qualified residence interest through 2021.
- Extends the credit for Health Insurance Costs through 2022.
- Extends nonbusiness energy credit through 2021.
If you have any questions about the tax provisions from the new legislation, please feel free to contact me at firstname.lastname@example.org or 609-689-9700. Additionally, our COVID Consulting Team has published an article on the highlights of the PPP2 portion of the bill, which can be found here – https://www.mercadien.com/resource/ppp2-is-here-what-you-need-to-know/
DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.