Tax Impacts of the Consolidated Appropriations Act

January 13, 2021

On December 27, 2020, Congress signed into law the Consolidated Appropriations Act, 2021 (the “Act”) which includes a COVID-19 stimulus package and a 2021 spending bill. Most notably, the Act allows for deductions of expenses paid with forgiven PPP loan proceeds. Some of the other key points addressed by this act are provided below.

CARES Act extensions and updates

  • Extension of the refundable payroll tax credit for paid sick and family leave under the Families First Coronavirus Response Act (FFCRA) through March 31, 2021.
  • Extension of the CARES Act employee retention tax credit through June 30, 2021. The Act also provides that employers who received PPP loans may qualify for the employee retention tax credit for wages not paid for with PPP funds.
  • Extension of the repayment period through December 31, 2021, for the employees’ share of social security taxes that employers were allowed to defer between September 1, 2020, and December 31, 2020.
  • COVID-19 related supplies and personal protective equipment are now an eligible educator expense deduction and will retroactively apply to March 12, 2020. The existing educator deduction of $250 remains the same and is available to individual taxpayers who are school employees working at least 900 hours and who are involved in educating any student in kindergarten thru 12th

Disaster tax relief

  • Individuals residing in qualified disaster zones may take up to $100,000 of distributions from their retirement plan or IRA without penalty. Such zones do not include any area that was declared a disaster solely because of COVD.
  • A tax credit of 40% is granted to employers operating a business in a qualified disaster zone (as defined by the Act).
  • Corporations are allowed to make qualified disaster relief contributions of up to 100% of their taxable income.
  • Individuals with qualified disaster-related net losses can increase their standard deduction by the amount of this net disaster loss.

Other individual provisions

  • Medical expenses: Individuals can now deduct unreimbursed medical expenses in excess of 7.5% adjusted gross income (AGI).
  • Charitable contributions:
    • Extension through 2021 of the $300 charitable contributions made by taxpayers who do not itemize deductions.
    • Extension through 2021 of the 100% of AGI limit for charitable contributions to qualified organizations.
  • Education: Elimination of the qualified tuition and related expenses deduction but increase in the phase out limits of the Lifetime Learning Credit, beginning in 2021.
  • Grants a $600 refundable tax credit per eligible family member and qualified child, phases out with AGI over $75,000 (single) and $150,000 (married filing jointly).

Other business provisions

  • Business meals: Increase in business expense deduction from 50% to 100% for business meals if the food or beverages are provided by a restaurant, effective January 1, 2021, through the end of 2022. All such meals qualify – dine-in, carryout, and delivery.  The term “restaurant” is not defined in the Act; we expect IRS clarification on this point.

For additional guidance and resources on this or other COVID-19 updates, visit our COVID-19 Hub or contact our COVID-19 Advisory Team at 240.364.2580.