The Congressional Appropriations Act passed in December contains many provisions providing tax relief to individuals. Below is a summary of the major provisions.
- Additional 2020 Recovery Rebates
- $600 per eligible family member
- Rebates phased out for married couple starting at $150K adjusted gross income (AGI), $75K for single and $112,500 for head of household.
- Advanced payments exceeding eligible credits are not required to be paid back.
- Checks/direct deposits are on an accelerated schedule and yours may have been sent out by now.
- Comment: The House passed a stand-alone bill to increase the checks to $2,000, which McConnell blocked in the Senate. Whether the new Congress takes this up again is anyone’s guess.
- $250 Educator Expense Deduction Expansion
- Now includes expenses for PPE such as disinfectant, masks, etc.
- Modifications to Child Tax and Earned Income Credits
- Your earnings can affect the amount you receive for these credits. If your 2019 income is greater than your 2020 income, you may elect to use the 2019 amount for purposes of determining your 2020 credits.
- Charitable Contributions
- Taxpayers who do not itemize deductions may deduct qualified charitable contributions of up to $300 for 2020. For 2021, these amounts are $300 (single) and $600 (joint).
- Penalties are increased for unsubstantiated or fraudulent deductions.
- Normally, charitable cash contributions may be deducted up to 60% of your AGI. For 2020, this is increased to 100% of AGI.
- Comment: Good records, always important, are even more vital given the increased penalties for disallowed deductions. Always get appropriate verification from the organizations to which you contribute.
- Flexible Spending Arrangements
- Plan providers are permitted to allow participants to carry forward unused funds from 2020 to 2021 and from 2021 to 2022.
- Applies to both health and dependent care FSA’s.
- If dependent ages out during pandemic, they continue to qualify until they turn 14.
- Comment: The precise language in the bill allows providers to do this, but does not state that they are required to do so. Best to contact the provider if you have doubts.
- Expanded Unemployment Benefits
- Pandemic Unemployment Assistance (PUA) is extended to 03/14/2021.
- If individual is receiving benefits on 3/14/2021 AND has not reached the maximum number of weeks, PUA is extended through April 5, 2021.
- Maximum number of weeks increases from 39 to 50.
- New PUA applicants must submit documentation of prior employment or self-employment within 21 days.
- Existing recipients must certify employment history within 90 days.
- New PUA supplement is $300/week starting after 12/26/2020 and ending 03/14/2021.
- Those with both employment and self-employment may be eligible to a $100/week supplement.