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Key Provisions of the Coronavirus Relief Bill Affecting Individuals

John J. FureyJanuary 15, 2021

COVID-19 Related Information

The Consolidated Appropriations Act of 2021 (the Act, also known as the Coronavirus Relief Bill) was signed by the President on December 27, 2020. In addition to Coronavirus aid it includes several tax provisions. This blog summarizes some of the key Coronavirus aid, tax and other provisions that affect individual taxpayers. The Act includes many provisions that affect businesses which are not included in this blog.

Economic Impact Payments (EIP Payments or Stimulus Checks)

  • The Act provides for direct payments of $600 to each adult and $600 per child to qualifying American households. The rules for the payments are like the rules for the payments distributed in April 2020. Dependents who are 17 and older are not eligible for the child payment.
  • Single adults who have an adjusted gross income (AGI) of $75,000 or less will get the full amount. Married couples with no children with an AGI of $150,000 or less will receive a total of $1,200. Taxpayers filing as head of household will get the full payment if their AGI is $112,500 or less. All qualifying income amounts are based on AGI from 2019 tax returns.
  • Above those amounts, the payment decreases by $5 for every $100 above the threshold until it stops altogether for single people (no children) at $87,000 or married people (no children) at $174,000 of AGI.
  • Your 2019 AGI will be used to determine eligibility. If you did not qualify for the payment based on your 2019 AGI but your 2020 AGI does qualify you, then you will receive a tax credit equal to the EIP Payments when you file your 2020 tax return. If your 2020 AGI is higher than your 2019 AGI and makes you ineligible for the payments, you do not have to give the money back.
  • You will see the EIPs ($1,200 in April 2020 and the $600 in January 2021) referred to as the Recovery Rebate Credit (RRC) on Form 1040 since the EIPs are an advance payment of the RRC.
  • You do not need to apply for the payments, which are automatic for eligible taxpayers who filed a 2019 tax return. They are also automatic for those who receive Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits as well as Supplemental Security Income (SSI) and Veterans Affairs beneficiaries who didn’t file a tax return. Payments are also automatic for anyone who successfully registered for the first payment online at IRS.gov using the agency’s Non-Filers tool by November 21, 2020 or who submitted a simplified tax return that has been processed by the IRS.
  • You can check the status of both your first and second payments by using the Get My Payment Tool.
  • You do not have to pay income tax on the payments.

2021 Tax Rates and Rules. Except for the deduction of  medical expenses, the Act did not change the tax rates and other rules that were explained in the Planning for Tax Year 2021 blog that was posted on November 12, 2020. The threshold for medical expenses was schedule to increase to 10% for 2021, but the Act permanently changed the threshold to 7.5% for future tax years. See IRS Publication 502 for a list of allowed medical expenses.

Unemployment Compensation. The Act provides for an extra $300 in federal supplemental unemployment compensation for 11 weeks and for many people it extends unemployment from 12/26/20 to 3/14/21. Unemployment compensation is taxable by the IRS. Recipients will receive a Form 1099-G for 2020 that will be reported to the IRS. Unemployment compensation is not taxable in PA. It may be taxable in other states depending on the tax rules in the recipient’s state.

Charitable Deductions. Under the Coronavirus Aid, Relief and Economic Security (CARES) Act that was passed in March 2020, you can deduct up to $300 per tax return in 2020 for charitable donations if you take the Standard Deduction. The Act provides that can deduct up to $300 (single) and $600 (married) in 2021 for charitable donations if you take the Standard Deduction. The Act allows you to deduct up to 100% of your AGI in charitable donations made to qualified charities in 2021. This higher limit only applies to cash gifts that go to a public charity. For example, if you give cash to your donor-advised fund the regular deduction limits apply.

Education Credits and Deductions. In 2020 the American Opportunity Credit of 2.5K and the Lifetime Learning Credit of 2K were subject to two different Modified AGI phase out limits. The Act makes both these tax credits subject to the same phase out limits of 80K to 90K (single) and 160K to 180K (married). The Act permanently eliminates the tax deduction for qualified tuition and related expenses.

Student Loan Relief. The Act extends the CARES Act provision that allows an employer to pay qualified student loan payments tax-free through its employer education assistance program (up to $5,250). The provision applies to payments made through December 31, 2025.

Temporary special rules for health and dependent care flexible spending arrangements. The Act allows taxpayers to roll over unused amounts in their health and dependent care flexible spending arrangements from 2020 to 2021 and from 2021 to 2022. This provision also permits employers to allow employees to make a 2021 midyear prospective change in contribution amounts.

Temporary Lookback for Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) The EITC and CTC are two of the most important income support programs that the federal government delivers through the tax code.  These programs offer significant refundable tax credits to working taxpayers who have earned income for the year in which they claim the credits. Unemployment compensation is not considered earned income for these credits. The EITC provides a credit as a percentage of earnings up to a certain maximum, while the CTC provides a fixed dollar amount refundable credit subject to a phase out based on AGI. The Act allows taxpayers to use their 2019 earnings, if higher than their 2020 earnings, when filing their 2020 tax returns for the purposes of claiming these credits.

Prohibition on Surprise Medical Bills. Individuals covered by a group health plan or individual/group health insurance receiving non-emergency services at a network facility cannot be balance billed by a non-network provider, unless the non-network provider gives notice to the individual and the individual consents. There is an exception for “ancillary services,” which is defined by the Act and includes anesthesiology, pathology, radiology (among other services).

Food and Beverage Business Expense Deduction. The Act increases the business expense deduction for the cost of food and beverage expenses related to the trade or business from 50% to 100% if the food and beverages are provided by a restaurant. This applies to business expenses incurred in 2021 and 2022.

If you have any questions about tax issues, please do not hesitate to call our office (610-651-2777).

 

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