Radnor News / Blog


Thu
2/18/21

posted by: Radnor Financial Advisors

CONSOLIDATED APPROPRIATIONS ACT OF 2021 – OVERVIEW

While the Consolidated Appropriations Act of 2021, signed into law by former President Trump last month, includes a typical list of tax modifications and extensions, it also provides economic relief in response to COVID-19. To save you a 5,500+ page read, below is a list of some of the key aspects.

Issues Second Round of Stimulus Payments

  • Establishes a base credit of $600 per eligible taxpayer (plus $600 per qualifying dependent(s)) as an advanced tax credit based on 2019 AGI
  • Utilizes CARES Act AGI phase-outs; every $100 above the threshold results in a $5 rebate reduction
    • If a taxpayer’s 2019 AGI was fully (or partially) phased-out, while 2020 AGI results in a larger rebate, the difference between the rebates will be credited on the 2020 return
    • If a taxpayer’s 2019 AGI enables him/her to receive a rebate now, but 2020 AGI is fully (or partially) phased-out, the individual will not be required to return the payment

Extends Unemployment Benefits

  • Increases Regular Unemployment Compensation and Pandemic Unemployment Assistance by $300 and extends through 3/14/21

Changes to Personal Income Tax

  • Extends deadline to repay any deferred payroll taxes until 12/31/2021
  • Restores the AGI hurdle rate for medical expense deductions to 7.5% of AGI
  • Replaces Tuition and Related Expenses deduction with Lifetime Learning Credit in 2021 and increases phase-out threshold to $80,000 ($160,000 for joint filers)
  • Extends CARES Act charitable cash contribution benefits for 2021 and modifies to allow joint filers to claim an above-the-line deduction of up to $600
  • Higher charitable contribution limit (i.e., 100% of AGI for cash gifts) was extended through 2021
  • Allows businesses to deduct 100% of spending at restaurants in 2021 – 2022
  • Allows taxpayers to use their 2019 earned income to calculate Earned Income Tax Credit and/or the Additional Child Tax Credit if favorable
  • Extends CARES Act employer payments of student loans through 2025
  • Extends debt forgiveness on a primary residence as excludable from income through 2025 but lowers the maximum 2021 forgiveness to $375,000 ($750,000 for joint filers)
  • Allows employers to offer participants to carryover unused 2020 FSA balances to 2021/2022 and modify 2021 FSA contributions

Re-establishes Paycheck Protection Program (PPP) and Introduces Part 2 (PPP2)

  • Re-opens original PPP (maximum loan amount: $10M) for businesses that didn’t receive a loan or returned some or all of funds
  • Establishes PPP2 (maximum loan amount: $2M) for businesses that already received and spent the entirety of a PPP loan
    • To receive PPP2 a business must have:
      • ≤ 300 employees (≤ 500 for Accommodation and Food Services), and
      • Experienced a > 25% decrease in revenue during any quarter in 2020 vs. 2019 quarter
    • Establishes expenses paid with PPP and PPP2 loans that are forgiven as deductible
    • Authorizes insurance expenses (related to group life, disability, dental, and vision) as payroll expenses
      • Please note: ≥ 60% of the loans must be utilized for payroll expenses to qualify for forgiveness
    • Authorizes additional expenses for both PPP and PPP2 loans
      • Covered operation and worker protection expenditures
      • Covered property damage and supplier costs
    • Simplifies forgiveness applications (loans up to $150,000)

Extends and Modifies Employee Retention Credit (ERC)

  • Authorizes businesses to benefit from both PPP loan and ERC and extends through 7/1/21
  • Increases the $10,000 cap on qualified wages to $10,000 per quarter
  • Raises ERC from 50% to 70% of qualified wages
  • Permits employers of up to 500 employees that experience a reduction in 2021 quarterly revenue by ≥ 20% (vs. corresponding 2019 calendar quarter) to claim
  • Introduces Alternative Quarter Election – allows employers to compare revenues for the prior calendar quarter to the corresponding 2019 calendar quarter if more favorable

Other Miscellaneous Modifications

  • Allows educators to claim a deduction for purchasing PPE and COVID-19 supplies
  • Allows for Qualified Disaster Distributions for individuals who have primary residences in federally declared disaster areas and sustain economic losses (other than COVID-19)
  • Extends deductibility of mortgage insurance premiums through 2021
  • Extends Energy-Efficient Homes Credit and Qualified Fuel Credits through 2021
  • Simplifies FAFSA and replaces EFC with the Student Aid Index (SAI) effective 7/1/2023

NOT Included in the Stimulus

  • Waiver of RMDs for 2021
  • Additional student loan relief

Despite the Biden Administration discussing an additional COVID-19 relief package, notable benefits of the current stimulus aren’t set to expire until later this year, such as the extension and increase in unemployment benefits on March 14th and the Employee Retention Credit on July 1st.

 

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