The U.S. Congress recently passed, and the President signed, the 5,593-page Consolidated Appropriations Act of 2021 relief package—and experts are still mulling over what the impact will be on ordinary citizens. There are stimulus checks, tax planning relief provisions, and a break for people who experience high medical expenses during the pandemic.
There’s even a new paycheck protection program extension.
New AGI and tax considerations in latest relief package
First, the new legislation provides for stimulus checks, with a “base” credit of $600 per eligible individual plus $600 more for any dependent child (technically, any children qualifying for a Child Tax Credit). But, as with the CARES Act, eligibility starts phasing out for individuals earning more than $75,000 of adjusted gross income or joint filers with over $150,000 AGI.
These phaseouts, based on the 2019 tax return, seem unfair. The economic hardships the bill was designed to address took place in the final three quarters of 2020. But if the taxpayer’s 2020 income calculation indicates a larger check amount, the government will issue an additional check to make up the difference. If someone receives a stimulus check based on 2019 income and then reports higher 2020 income, that would make that person ineligible to receive the check. There will be no requirement to pay the money back to the government.
The new legislation also extends regular unemployment compensation benefits for an additional 11 weeks and adds $300 a week to the unemployment checks. This “pandemic unemployment assistance” for individuals who wouldn’t usually qualify for unemployment benefits (such as self-employed persons) was also extended for 11 more weeks. Note that the $300 a week and 11 weeks is lower than the $600 a week and four-month extension passed in the CARES Act.
Medical and charity deductions in the new relief package
On the tax front, the hurdle for deducting medical expenses in any given year was reduced from 10% to 7.5%, meaning that anything over that percentage of adjusted gross income would now be deductible on your next tax return. And the bill extends a provision from the CARES Act relating to charitable deductions.
People can take a full deduction of up to 100% of their AGI for any cash donation to a public or private charity (but not a donor-advised fund).
In the bill, Congress did not extend the temporary waiver of required minimum distributions, which means that people over age 72 will have to resume taking their RMDs in 2021.
What else can we find in those 5,593 pages?
Taxpayers will use their 2019 earned income to determine eligibility for the 2020 earned income tax credit and additional child tax credit.
Business lunches and dinners have become 100% deductible for 2021 and 2022.
And the bill creates a second round of the Paycheck Protection Program forgivable loans, with $284 billion set aside.
Finally, the bill provides funding for the federal government’s operations for another nine months.
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