Happy New Year! I hope you and your families are doing well and staying safe & healthy!
Just before the end of 2020, Congress passed and the President signed into law the Consolidated Appropriations Act of 2021 (CAA). The purpose of this bill is to provide more government funded stimulus to the American economy in the wake of the pandemic.
This was a very extensive and complicated bill but I will touch on some of the key provisions that will affect many Americans.
- Economic Impact Payments: For the second time this year, another round of stimulus checks will be paid out. The payments will total $ 600 for singles, $ 1,200 for couples filing jointly plus an additional $ 600 for each child under age 17. The eligibility for the EIPs starts to phase out at income above $ 75,000 for singles, $ 112,500 for those filing head of household and $150,000 for married couples filing jointly. These stimulus funds represent an advance payment on a special 2020 tax credit that will be reconciled on your 2020 tax return. If the credit exceeds what you received, then you will be able to claim the additional credit on your return. If the payments that you receive exceed the credit, you will not have to pay them back.
- Retirement plan distributions: The 10% penalty for early distributions is waived for withdrawals up to $ 100,000. The payment of tax on the distributions is spread over a 3-year period but tax can be avoided if the amounts are rolled over during the 3-year period.
- Payroll Protection Program (PPP) Loans: In welcome news for businesses, the debt forgiven on PPP loans is not taxable and the expenses qualifying for forgiveness are deductible. A simplified process for applying for loan forgiveness is now available for loans of $ 150,000 or less. In addition, a second round of PPP loans will be forthcoming which will be targeted at smaller businesses that have been hit hard by the economic fallout of the pandemic.
- Deductible meals: In a surprise gesture, the CAA allows for the 100% deduction of business meals in 2021 and 2022. These are usually only 50% deductible. This measure was given to stimulate the restaurant industry which obviously has suffered greatly over the past year. Please note that the 100% deductibility will not apply to 2020 tax returns.
Again, these are just some of the highlights of the CAA. Individuals and businesses will continue to benefit from this bill throughout 2020. With the new Biden administration coming in on January 20, we can expect more legislation aimed at stimulating the economy. Stay tuned!
We are committed to serving your tax preparation and tax planning needs. If you have questions on the CAA or any other tax matters, please do not hesitate to contact our office. We wish you the best for the new year!
The information in this blog post is general in nature and not intended as specific advice. Please consult a tax advisor to see how this information applies to your specific situation.