Tax Benefits for Individuals Included in the Consolidated Appropriations Act

print February , 2021

The Consolidated Appropriations Act, 2021 (CAA) extended several provisions for tax relief for individuals. Most of these provisions were introduced by the CARES Act in March 2020 to help both individuals and businesses affected by the COVID-19 pandemic. This article looks at the tax benefits individuals should consider as they file their 2020 tax returns.

Charitable Deductions

Two provisions from the CARES Act affecting charitable deductions were extended and modified through 2021 by the CAA:

  1. Individual donors who make cash contributions to qualifying public charities in 2021 can once again choose to deduct up to 100% (previously 60%) of their adjusted gross income (AGI). Contributions to a supporting organization, a donor advised fund and most private foundations will not qualify for this provision.
  2. The CAA modified the amount non-itemizing taxpayers can claim as an above-the-line charitable tax deduction and also increased a related penalty:
    • Married taxpayers who file jointly can now claim up to $600 in qualifying cash donations made in 2021.
    • Claims will be allowed for cash payments made to most public charities. Donor-advised funds and Section 509(a) organizations are excluded.
    • Taxpayers who overstate the deduction will face a 50% penalty, up from 20%.

Flexible Spending Accounts (FSAs)

If you have an FSA for health or dependent care that carried a balance at the end of 2020, the CAA allows those funds to be rolled over into 2021. Likewise, FSA holders who have unused benefits at the end of 2021 will be allowed to rolled that money over into 2022. That carryover amount is currently limited to $550.

Health Benefits

The Families First Coronavirus Response Act (FFCRA) provided paid sick and family medical leave in 2020. The CAA extends those benefits until March 31, 2021.

Expenses

  1. The CAA made permanent a tax extender that reduced the medical expense deduction floor. This provision allows individuals to deduct unreimbursed medical expenses if their medical expenses exceed 7.5% of their adjusted gross income (previously 10%).
  2. Educators who purchase personal protection equipment to help prevent the spread of COVID-19 can include those costs in their annual $250 educator expense deduction.
  3. Businesses can claim meals as a business expense as long as the food or beverages are provided by a restaurant. This temporary provision allows a 100% deduction of the business meals incurred after December 31, 2020, and will expire at the end of 2022.

Section 163(j) Election

An error in the Tax Cuts and Jobs Act of 2017 meant that taxpayers who owned residential property that was rented out before 2018 had to apply a 40-year alternative depreciation system recovery period to that property. The CAA corrected this provision by applying a 30-year depreciation to all residential rental property.

 

If you have any questions related to these tax benefits, please contact a member of our tax team by filling in the form below or calling 404-874-6244.

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