On December 27, President Trump signed off on a $2.3 trillion package that included a second round of stimulus checks, government funding, and other pandemic relief. Although he was unhappy with the $600 payment amount, signing the bill averted a government shutdown and extended much-need unemployment benefits. The 5,593-page stimulus package also expanded certain tax credits and deductions, while also extending many tax provisions that were due to expire soon. Here’s a quick look at some of the new stimulus package tax provisions.
Tax Provisions for Individuals
The new relief package includes several tax provisions aimed at helping students, low-income families, and other individuals.
- Lifetime Learning Credit – The income threshold has increased to allow more students to take advantage of this tax credit.
- Earned Income Tax Credit (EITC) & Additional Child Tax Credit (ACTC) – Taxpayers may use their 2019 earned income to determine their EITC and ACTC on their 2020 tax return. This should help many low-income families retain their tax credits, especially if they saw a reduction in their income this year.
- Educator Expense Deduction – Under the new relief package, elementary and secondary school teachers may now include coronavirus supplies (disinfectant, masks, gloves, etc.) as part of their educator expense deduction (up to $250).
- Emergency Financial Aid – Students receiving emergency financial aid grants (as outlined in Section 3504 of the CARES Act) may exclude it from their taxable income.
- Solar Energy Tax Credit – The 26% tax credit for qualifying solar equipment purchased for your home is now extended through 2022. The credit drops to 22% for equipment placed into service in 2023. After that, the credit will no longer be available.
Unfortunately, the above-the-line tax deduction for qualifying tuition and fees, which allowed eligible taxpayers to deduct up to $4,000 from their taxable income, was not extended past its 2020 expiration date. The new income limits under the Lifetime Learning Credit, however, should help mitigate the loss of this deduction in future tax years.
Tax Provisions for Business Owners
With COVID-19 expected to impact business owners throughout much of 2021, many existing tax provisions were updated or expanded, including:
- Employee Retention Tax Credit (ERTC) – Business owners may now qualify for the ERTC even if they received a PPP Loan. The credit also increased from 50% to 70% of qualified wages for the period between January 1 and July 1, 2021. Each employee’s allowable wage amount is now $10,000 per quarter instead of per year. Additionally, the required decline in gross receipts has dropped from 50% to 20% when determining eligibility.
- PPP Loans & Business Deductions – The new coronavirus relief package finally provides clarification that business expenses paid with forgiven PPP loan proceeds are fully deductible for federal tax purposes.
- FFCRA Tax Credit – The Families First Coronavirus Relief Act (FFCRA) tax credit for employers is extended through March 31, 2021, for those who voluntarily provide coronavirus-related leave after December 31, 2020.
- Business Meal Deduction – The new stimulus package restores the 100% business meal deduction for the next two years in an effort to help the struggling restaurant industry.
The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (CRRSAA), which is part of the $2.3 trillion appropriations bill, reopened the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) grant program. This provides much-need financial assistance to business owners who continue to struggle during the pandemic.
Stimulus Package Tax Provisions – Tax Extensions
The stimulus package tax provisions also includes more than $100 million in tax extensions that were set to expire at the end of 2020. Many were extended for an additional year, but others are now active through 2025. Some tax provisions, such as the Craft Beverage Modernization and Tax Reform Act (CBMTRA), were made permanent.
Tax Provisions Extended Through 2021
- Charitable Contributions (Individuals) – For those who do not itemize, the above-the-line deduction of $300 for charitable contributions is extended for an additional year. The deduction amount for married couples who file jointly has increased to $600.
- Charitable Contributions (Businesses) – The increased taxable income limit for cash donations from 10% to 25% is extended through 2021. The limit for food inventory contributions (15% to 25%) is also extended for the same period.
- Deferred Payroll Taxes Repayment– Those participating in the deferred payroll tax program will now have until the end of 2021 to repay any deferred Social Security tax amount.
- Health Coverage Tax Credit – This tax credit helps offset the cost of health care for retirees and other individuals who have lost their coverage.
- Personal Energy-Efficient Tax Credit – The $500 lifetime tax credit for energy-efficient home improvements is extended through 2021.
Tax Provisions Extended Through 2025
- Work Opportunity Tax Credit – Employers who hire members of targeted groups, as outlined in Section 51, may be eligible for a tax credit equal to 40% of the qualified first-year wages for such year.
- PFMLA Tax Credit – The Paid Family and Medical Leave Act (PFMLA) tax credit is once again extended. Employers may claim up to 25% of the amount paid to workers taking eligible leave under the federal Family and Medical Leave Act (FMLA).
- Employer-Paid Student Loan Payments – Employees can now receive up to $5,250 in student loan payments tax-free through employer-sponsored educational assistance programs through 2025. Employers can deduct the payments on their tax returns, as well.
Tax Provisions Made Permanent
- Commercial Energy-Efficiency Tax Deduction – The $1.80 per square foot tax deduction for use of qualifying energy-efficient technologies in commercial buildings (IRS Section 179D) is now permanent.
- Unreimbursed Medical Expenses – Permanently changes the unreimbursed medical expenses threshold from 10% to 7.5% of adjusted taxable income.
- Volunteer Firefighter & Emergency Responder Benefits – The exclusion of qualified payments, as well as state and local tax benefits from gross income for qualified members is permanent.
This is just a small glimpse at some of the stimulus package tax provisions provided in the new appropriations bill. If you have questions regarding the impact of these changes on your personal or business tax returns, we encourage you to reach out to a tax professional. At Tax Defense Network, we offer affordable tax planning, tax preparation, and tax debt relief services. Call 855-476-6920 to schedule a free consultation today!