KEY TAKEAWAYS – THE CONSOLIDATED APPROPRIATIONS ACT

Author: Joe Baranek, Senior Planning Associate

On Monday, December 27th President Trump signed a second pandemic relief package worth $908 Billion. Below are some of the key takeaways for The Consolidated Appropriations Act:

• Second round of stimulus checks – This bill will be providing a second round of stimulus checks to adults who made less than $75,000 in 2019 and this check will be worth up to $600. Once an individual makes over $75,000, the payment is reduced by $5 for every $100 in AGI over the limit. An individual would be completely phased out if they had an AGI above $87,000 for single filers, or $174,000 for joint filers. Direct deposits have already begun, and many individuals can expect to receive their check by January 15, 2021. For individuals who don’t receive their stimulus checks, they can claim a refundable credit for the amount they were owed on their 2020 tax return. Much like the last stimulus check, dependents over the age of 17 are not eligible to receive funds. [1] [2]

• Charitable contributions – When congress passed the CARES Act in the spring of 2020, it increased the limitation on charitable contributions for 60% of a taxpayers AGI to 100%. The bill also allowed for taxpayers to take a $300 adjustment (above-the-line deduction) for charitable contributions. Both provisions have been extended through 2021. [2] [3]

• Medical expense deductibility – Taxpayers can now deduct medical expenses above 7.5% of a person’s AGI. This limitation used to fluctuate between 7.5% and 10% for individuals. [2] [3]

• Employer deferred payroll taxes – Employers could defer the employee share of payroll taxes from 9/1/2020 to 12/31/2020. This has been extended to 12/31/2021. This means that the employer has until that time to pay the employee’s share of payroll taxes. [3]

• PPP loans and expenses – With the CARES Act, businesses could not deduct expenses related to the PPP loan. The Consolidated Appropriations Act now allows employers to deduct these expenses. This new legislation includes an additional $284 Billion for additional PPP loans for small businesses. In addition, the act allows four additional categories that businesses can use the PPP funds for: covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenses. [2]

• Required Minimum Distributions – While the CARES Act allowed individuals to defer their RMD for 2020, the Consolidated Appropriations Act did not. Individuals should plan on taking minimum distribution from their IRA’s in 2021, as required. [2]

• Education Credits – After the tax year 2020, taxpayers will no longer be able to utilize the tuition and fees deduction. Instead, this will be replaced with a higher phase-out range for the Lifetime Learning Credit. Originally, taxpayers would see the lifetime learning credit phase out for an individual earning between $59,000-$69,000 ($118,000-$138,000 for joint filers). Now, the Lifetime Learning Credit phase-out range will be $80,000-$90,000 ($160,000-$180,000 joint filers). [2]

• Student Loan relief – The Consolidated Appropriations Act did not extend relief on repayment of student loans. The grace period for suspended loans expires on January 31, 2021. [2]

SOURCES:

[1] Forbes. Dec. 2020. “IRS Says You Don’t Need To Do Anything To Get Your Stimulus Check (And Answers Your Other Questions).”

[2] Kitces.com. Dec. 2020. “Coronavirus Stimulus 2.0: Analysis & Planning Opportunities In The Consolidated Appropriations Act of 2021.”

[3] Wolters Kluwer. Dec 2020. “Year-End Agreement Reached on Pandemic Relief, Stimulus, and Extenders.”

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