Key Year-end Tax Provisions & Covid-19 Reliefs
Updated: May 16, 2022
As the coronavirus (COVID-19) continues to affect local communities and global economies, Whin Global remains committed to serving your tax and financial planning needs. As part of this commitment, we want to make you aware of key tax provisions impacting individual and businesses contained in the year-end coronavirus relief legislation, known as the Consolidated Appropriations Act, 2021 (H.R. 133), that was signed into law on Dec. 27, 2020, P.L.116-260
Key individual tax provisions contained in the year-end coronavirus relief act
Additional economic impact payment/recovery rebate
Like the first round of economic impact payments that taxpayers received in mid-2020, the year-end legislation provides a new economic impact payment in the amount of $600 per eligible family member ($1,200 if you file a joint return with your spouse). And, each qualifying child will also receive $600. However, the payment amount is reduced based on your income. The impact payment phases out starting at $75,000 of income ($112,500 for heads of household and $150,000 for married taxpayers filing jointly) at a rate of $5 per $100 of additional income.
The IRS and Treasury have begun issuing these payments on January 4, 2021, but it will take several weeks or longer for all qualifying taxpayers to receive their payments. Expats, please be patience if receiving a paper check. It will take a while. And, for some taxpayers, they may need to file their 2020 tax return in order to claim and receive the correct payment, including the first draw of $1200 per taxpayer and $500 per dependent child.
Status of the payments
You may check the status of your economic impact payments using the IRS’s Get My Payment tool. And, please contact our office if you have other questions.
Medical expense deduction
The new legislation should make it easier for more taxpayers to take advantage of the medical expense deduction. The threshold for taxpayers to qualify was going to be 10% of adjusted gross income beginning in 2021 but, with the recent legislation, it now permanently remains at 7.5%. Please contact our office if you’d like our assistance with calculations to determine if this deduction is beneficial to you
The legislation extends the $300 charitable deduction (for cash donations) for taxpayers who do not itemize (known as an above-the-line deduction). It also increases the maximum amount that may be deducted on 2021 tax returns to $600 for married couples filing jointly. Keep in mind that for 2020 tax returns, $300 is the maximum allowed per tax return, regardless of filing status.
Other tax provisions
Here are a few more tax law changes that may interest you:
The law allows residents of qualified disaster areas to take a distribution of up to $100,000 from a qualified retirement plan or individual retirement account (IRA) without 10% penalty for early withdrawal.
The mortgage insurance premium deduction is extended by one year (through 2021).
If you’re a contractor or consultant, there are many tax-favorable elements in the new law:
Some important changes include a 100% business expense deduction for meals (rather than the prior 50%) if the expense is for food or beverages provided by a restaurant. This is a temporary provision effective for expenses incurred after Dec. 31, 2020 and expires at the end of 2022.
If a small business was able to take advantage of the Paycheck Protection Program (PPP), the new law clarifies that any amount received from a PPP loan that is forgiven is not considered income for tax purposes.
Deductions are also allowed for otherwise deductible expenses paid with the proceeds of a forgiven PPP loan.
The new law opens the program again on January 11, 2021 and allows certain businesses to receive a second draw of funds, if they qualify.
Key business tax provisions contained in the year-end coronavirus relief act
100% meals and entertainment deduction
The new tax law contains a tax-favorable change to the deduction for business meals. It temporarily allows a 100% business expense deduction for meals (rather than the prior 50%) if the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020 and expires at the end of 2022.
Are Expenses funded by PPP loans deductible?
Many small businesses needed the support of the Small Business Administration’s Paycheck Protection Program (PPP). This program provided much-needed funds to help certain businesses, self-employed workers and certain nonprofit organizations continue paying their workers.
The recent coronavirus relief tax law clarifies that any amount received from a PPP loan that is forgiven is not considered income for tax purposes. Deductions are also allowed for otherwise deductible expenses paid with the proceeds of a forgiven PPP loan. Please contact our office if you have questions about the PPP or how funds may be treated for tax purposes.
The new law opens the program again on January 11, 2021 and allows certain businesses to receive a second draw of funds.
Payroll tax credits
The law extends the refundable payroll tax credits for paid sick and family leave, enacted in the prior tax legislation, through the end of March 2021. It also modifies the payroll tax credits so that they apply as if the corresponding employer mandates were extended through March 31, 2021. The new law also allows individuals to elect to use their average daily self-employment income from 2019 rather than 2020 to compute the credit.
Employee retention tax credit modifications
The new law extends the employee retention tax credit (ERTC) through June 30, 2021. It also expands the ERTC and contains technical corrections. A noteworthy modification provides that employers who receive PPP funds may still qualify for the ERTC with respect to wages that are not paid with forgiven PPP proceeds.
Deferral of employees’ portion of payroll tax
The legislation extends the r