Tax Implications of Consolidated Appropriations Act for December 2020

by Megan Hiles
Above photo of iPhone with calculator app loaded, to the left of a clipboard with a 1040 form

On December 27, 2020, President Donald Trump signed the Consolidated Appropriations Act, 2021 (H.R. 133) into law.  Below are the significant individual and business provisions.

Extension of Unemployment Insurance Compensation Benefits

An 11-week extension of unemployment insurance benefits.  This will provide an additional $300 per week along with state unemployment insurance.

Stimulus Checks to Individuals

Similar to the first round of stimulus checks from the CARES Act.  The amounts are up to $600 per individual and qualified child, with no cap on household size. Adult dependents are not eligible. These are advanced tax credits based on 2019 income and begin to phase out at $75,000 for single filers, $112,500 for heads of household, and $150,000 for those married filing jointly. The payments phase out entirely at $87,000 for single filers with no qualifying dependents and $174,000 for those married filing jointly with no qualifying dependents

Child Tax Credit & Earned Income Tax Credit

Adjustments to how the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) are calculated.  This provision would use 2019 income to determine an individual’s credit eligibility for the 2020 tax year.

Charitable Contribution

For taxpayers that do not itemize their deductions there will be an above the line charitable deduction of $300 for 2020.  For 2021 the deduction is $300 for single taxpayers and $600 for married filing joint taxpayers.

Flexible Savings Accounts

For 2020 any unused Flexible Savings Account (FSA) balances can be rolled over from 2020 to 2021.  Additionally, 2021 balances can be rolled into 2022. Typically balances remaining at the end of the year are lost if not used completely.

Employee-side Payroll Tax Deferral

For those companies that opted into the employee-side payroll tax deferral, the repayment deadline has been extended from April 2021 to December 31, 2021.

Deduction for Business Meals

Qualified business meals will be 100% deductible for 2021 and 2022.  For 2020 they remain 50% deductible.

Medical Expense Deduction

Permanent extension of the 7.5% AGI threshold, as opposed to 10%.

179D – Energy Efficient Commercial Building Deduction

Permanent extension; was set to expire in 2020

45L – Energy Efficient Home Credit

Permanent extension; was set to expire in 2020

Credit for Qualified Sick Leave

In the case of sick leave wages paid by an employer to an employee, the employer may receive a refundable credit against its share of social security tax. The credit can be claimed on a quarterly basis, equal to 100 percent of the amount of sick leave wages paid.

The amount of the credit is limited to $200 per day per employee. However, the credit increases to $511 per day if the employee is on leave for the following reasons:

  • Is subject to a federal, state or local quarantine or isolation order related to COVID-19;
  • Has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or
  • Is experiencing symptoms of COVID-19 and seeking a medical diagnosis.

The total payroll tax credit is limited to 10 days of wages per employee.

Credit for Qualified Family Leave

A separate refundable payroll tax credit applies for family leave wages paid by an employer under the Coronavirus Response Act. The credit is 100 percent of the amount of qualified family leave wages limited to $200 per day per employee, up to an aggregate of $10,000.

Wages, for purposes of both credits, include a portion of health plan expenses properly allocable to the qualified sick and family leave wages. The paid sick and family leave requirements and the related employer tax credits are temporary. They expire on March 31, 2021.

Clarification: Employers who received PPP funds are eligible for this credit.  However, the wages paid with PPP funds are not qualifying wages for the credits for qualified sick leave or qualified family leave.