UPDATE: This article has been updated to reflect the legislation’s passage into law on December 27, 2020
For more information on how this law impacts the Paycheck Protection program, read Updates to the Paycheck Protection Program
On December 27th, congressional legislation to fund government operations and provide an additional $900 billion in relief to address the economic challenges of the COVID-19 pandemic was signed into law by the President. The nearly 5,600-page law includes clarifications to the March act, extensions of certain tax provisions, funding for another round of direct stimulus payments, and extended unemployment benefits, food, housing, and education supplements.
Key Tax Provisions for Individual Taxpayers Include:
- Direct stimulus payments of $600 for each taxpayer and each qualifying child dependent, with no household cap and graduated phase-outs for taxpayers with income between $75,000 ($150,000 for joint filers) to $87,000 ($174,000 for joint filers).
- Taxpayers with cash contributions to public charities can deduct a maximum $300 and $600 if using the standard deduction in 2020 and 2021, respectively. For cash gifts to public charities by itemizing taxpayers, they deduct an amount up to 100% of their adjusted gross income.
- The ‘floor’ for deducting qualified medical expenses is permanently reduced from 10% of adjusted gross income to 7.5%.
- After 2020, the deduction for qualified tuition expenses is eliminated and the education credits are increased.
- The income exclusions for the discharge of qualified principal residence indebtedness and employer payments of student loans were extended through 2025.
- The mortgage insurance premiums are deductible as interest through 2021.
- Clarification of income exemption for qualified student emergency financial aid grants.
- A special election to use prior year income to compute the 2020 Earned Income Credit.
- Also extended for an additional year are the credits for
- health insurance costs,
- certain nonbusiness energy property,
- energy efficient homes,
- qualified electric vehicles, and
- 2-wheeled plug-in vehicles.
Businesses Were Also Affected By:
- The extension of employers’ tax credit for payments of paid sick and family leave through March 31, 2021.
- The extension of the payment date for payroll taxes due through May 1, 2021 until January 1, 2022.
- Special elections for farmers regarding the treatment of NOLs for 2018, 2019, and 2020.
- A second round of SBA loan financing under the Paycheck Protection Plan (PPP) including clarification of the tax status of debt forgiveness (exempt) and qualifying business expenses (deductible).
- A temporary 100% deduction for business meals provided by a restaurant in 2021 and 2022.
- Remaining account balances at the end of 2020 and 2021 in health or dependent care flexible arrangements can be used in the next year.
- The employee retention payroll tax credit (ERTC) was extended through June 2021. The credit increased from 50% to 70% of qualifying wages capped at $10,000 per quarter.
- Temporary tax provisions were extended again or made permanent.
- The deduction for certain qualifying energy improvements to commercial buildings was made permanent.
- Provisions extended through 2025, include the New Markets Tax Credit, the Work Opportunity Tax Credit, and the employer credit for paid family and medical leave.
- One-year extensions were provided for renewable energy credits and depreciation lives and credits related to Indian properties and employees
- Energy tax credits were extended through the end of 2023.