On Sunday, December 27, President Trump signed H.R. 133 (Consolidated Appropriations Act, 2021) into law. Highlighted below are some of the new income tax provisions included in the bill that may impact you or your business.
Economic Impact Payments
As part of the new COVID-19 relief bill, Congress will provide a second round of stimulus payments. The stimulus payments will be $600 for individuals and $1,200 for married couples filing jointly, plus $600 for each dependent child under the age of 17. Anyone eligible to be claimed as a dependent on another’s return is not eligible to receive a payment. These payments are phased out for single taxpayers whose AGI exceeds $75,000 and married couple taxpayers whose AGI exceeds $150,000.
Unemployment Insurance
The relief bill will provide an additional $300 per week for those receiving unemployment benefits. In addition, the bill increased the maximum amount of weeks an individual may claim state unemployment benefits to 50 weeks. The Pandemic Unemployment Assistance (PUA) program and the Pandemic Emergency Unemployment Compensation (PEUC) program were extended as well.
Full Business Meals Deduction
As an incentive for taxpayers, Congress modified the tax law to allow taxpayers to fully expense meals purchased in 2021 and 2022. Certain prerequisites under Reg. Section 1.274-12 do need to be met for the meal to be 100% deductible.
Changes to Charitable Contributions
As part of the CARES Act, taxpayers who do not itemize their deductions can claim a $300 charitable deduction. The bill extended this deduction to 2021. It also increased the deduction to $600 for married couples filing jointly. The increased limitation for deductible cash contributions to a public charity from 60% to 100% will also extend into 2021.
Unreimbursed Medical Expenses
All unreimbursed medical expenses are deductible to the extent they exceed 7.5% of adjusted taxable income. While this floor was subject to change in 2021, the bill makes this 7.5% floor permanent.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit was extended for five more years, until December 31, 2025.
Additional Guidance on the Way
We are monitoring developments and their implications closely and will provide additional updates as guidance is released.
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