Individual Provisions Relating to the Consolidated Appropriations Act
On December 27, 2020, the president signed the Consolidated Appropriations Act to provide assistance to those impacted by the pandemic. MNMW would like to share some of the key points from the Act as they relate to Individual Provisions
Section 101. Reduction in medical expense deduction floor
Between 2013 and 2017, individuals under 65 years old could claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceeded 10 percent of AGI, while for individuals 65 or older, the threshold was 7.5 percent of AGI. Prior to this period, the 7.5 percent threshold generally applied regardless of age. The provision makes permanent the lower threshold of 7.5 percent for all taxpayers, originally restored for 2017 and 2018 and then extended for 2019 and 2020.
Section 104. Transition from deduction for qualified tuition and related expenses to increased income limitation for lifetime learning credit
The qualified tuition deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers). After
2020, the provision repeals the qualified tuition deduction and replaces it by increasing the phase-out limits on the Lifetime Learning credit from $58,000 ($116,000 for joint filers) to $80,000 ($160,000 for joint filers). In the vast majority of circumstances, these increased phase-out limits hold harmless those taxpayers who would have otherwise benefited from this deduction.
Section 114. Exclusion from gross income of discharge of qualified principal residence indebtedness
The provision extends, through 2025, the exclusion from gross income for a
discharge of qualified principal residence indebtedness. The provision reduces the maximum amount that may be excluded from $2,000,000 to $750,000. Generally, indebtedness must be the result of acquisition, construction, or substantial improvement of primary residence.
Section 133. Treatment of mortgage insurance premiums as qualified residence interest
The provision extends, through 2021, a rule treating qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction. This deduction phases out for taxpayers with adjusted gross income (AGI) over $100,000 ($50,000 if married filing separately).
Section 134. Credit for health insurance costs of eligible individuals
The provision extends, through 2021, a refundable credit (commonly referred to as the health coverage tax credit or “HCTC”) equal to 72.5 percent of the premiums paid by certain individuals for coverage of the individual and qualifying family members under qualified health insurance.
Section 146. Energy-efficient homes credit
The provision extends, through 2021, the credit of up to $2,000 for qualified new energy-efficient homes.
Section 148. Extension of residential energy-efficient property credit and inclusion of biomass fuel property expenditures.
The provision extends, through 2022, the credit for residential energy efficiency property at the current 26 percent rate for property placed in service through 2022, with the rate reduced to 22 percent for property placed in service in 2023. Starting in 2021, the provision expands the definition of eligible property to include qualified energy-efficient biomass fuel property with a thermal efficiency rating of at least 75 percent. Correspondingly, biomass stoves will no longer qualify under section 25C, to prevent a double benefit.
Section 211. Temporary special rule for determination of earned income
The provision allows taxpayers to refer to earned income from the immediately preceding year for purposes of determining the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) in tax year 2020.
Section 212. Certain charitable contributions deductible by non-itemizers
This provision extends and modifies the non-itemizer charitable deduction for 2021. The provision increases the maximum amount that may be deducted such that married couples filing a joint return may deduct up to $600 (while non-married filers or married filers who file separately are limited to $300). Additionally, the provision restructures the deduction such that, although it may be claimed only by non-itemizers, the deduction does not reduce adjusted gross income.
Section 213. Modification of limitations on charitable contributions.
This provision extends for one year the increased limit from the CARES Act on deductible charitable contributions for corporations and taxpayers who itemize.
Sec. 214. Temporary FSA rule
The provision:
- Allows plans to permit health and dependent care flexible spending arrangements (FSAs) to carryover unused benefits up to the full annual amount from 2020 to 2021 and 2021 to 2022;
- Allows plans to permit a 12-month grace period for unused benefits or contributions in health and dependent care FSAs for plan years ending in 2020 or 2021;
- Allows plans to extend the maximum age of eligible dependents from 12 to 13 for dependent care FSAs for the 2020 plan year and unused amounts from the 2020 plan year carried over into the 2021 plan year; and
- Allows plans to permit a prospective change in election amounts for health and dependent care FSAs for plan years ending in 2021.
Section 2 & 3. Additional 2020 recovery rebates for individuals
The provision provides a refundable tax credit in the amount of $600 per eligible family member. The credit is $600 per taxpayer ($1,200 for married filing jointly), in addition to $600 per qualifying child. The credit phases out starting at $75,000 of modified adjusted gross income ($112,500 for heads of household and $150,000 for married filing jointly) at a rate of $5 per $100 of additional income. NOTE: Congress is considering increasing this amount in a subsequent bill. As of now, the individual stimulus relief payment is $600, and the consideration is to increase that to $2,000
The provision also provides for Treasury to issue advance payments based on the information on 2019 tax returns. Eligible taxpayers treated as providing returns through the nonfiler portal in the first round of Economic Impact Payments, provided under the CARES Act, will also receive payments. Treasury may issue advance payments for Social Security Old-Age, Survivors, and Disability Insurance beneficiaries, Supplemental Security Income recipients, Railroad Retirement Board beneficiaries, and Veterans Administration beneficiaries who did not file 2019 returns based on information provided by the Social Security Administration, the Railroad Retirement Board, and the Veterans Administration.
In general, taxpayers without an eligible social security number are not eligible for the payment. However, married taxpayers filing jointly where one spouse has a Social Security Number and one spouse does not are eligible for a payment of $600, in addition to $600 per child with a Social Security Number.
The provision aligns the eligibility criteria for the new round of Economic Impact Payments and the credit for the Economic Impact Payments provided by the CARES Act. Taxpayers receiving an advance payment that exceeds the amount of their eligible credit will not be required to repay any amount of the payment. If the amount of the credit determined on the taxpayer’s 2020 tax return exceeds the amount of the advance payment, taxpayers will receive the difference as a refundable tax credit.
Advance payments are generally not subject to administrative offset for past-due federal or state debts. In addition, the payments are protected from bank garnishment or levy by private creditors or debt collectors.
Additionally, the provision instructs Treasury to make payments to the territories that relate to each territory’s cost of providing the credits.
Section 5. Regulations or guidance clarifying application of educator expense tax deduction
The provision requires the Secretary of the Treasury to issue guidance or regulations providing that personal protective equipment and other supplies used for the prevention of the spread of COVID-19 are treated as eligible expenses for purposes of the educator expense deduction. Such regulations or guidance shall be retroactive to March 12, 2020.
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