1. The Consolidated Appropriations Act, 2021
At the end of 2020, the Consolidated Appropriations Act became law. With its passage, several included tax provisions will affect how Americans prepare their taxes for at least one more year.
The package includes many extensions of expiring deductions and credits, extensions, and expansions of certain tax relief provisions provided as part of the national response to the pandemic and various disaster tax relief provisions.
Among the many included items, the law provides:
- $600 advance payments of a tax credit per taxpayer ($1,200 for married filing jointly) plus $600 for each qualifying child. The credit, like the first stimulus checks, phases out starting at $75,000 of modified adjusted gross income ($112,500 for heads of household and $150,000 for married filing jointly)
- an extension of the ability for businesses to deduct 100% of certain meal expenses
- a clarification that personal protective equipment is a deductible expense for qualified teachers as part of the $250 qualified educator tax deduction
- an extension of the $300 deduction for cash charitable deductions if you claim the standard deduction. For 2021, the deduction is increased to $600 for joint filers.
- clarification that gross-income will not include an amount equal to any forgiven amount of a Paycheck Protection Program (PPP) loan and that expenses paid with forgiven PPP loans are fully deductible.
The American Rescue Plan passed in 2021 also included some notable changes
Roughly 85% of Americans will receive a $1,400 payment, including:
- Americans who earn less than $75,000 annually
- Americans who earn up to $112,500 as a heads of households
- Couples filing jointly who earn up to $150,000 ($2,800 total, or $1,400 per person)
Expanded the Child Tax Credit
The child tax credit was expanded by the American Rescue Plan Act of 2021. The previous credit of $2,000 per child ($1,400 of which was refundable) was expanded to $3,000 per child ($3,600 for children under 6). The expanded credit was deemed fully refundable for 2021; a tax credit is “refundable” if any excess of the tax credit over a taxpayer’s total tax liability is paid to the taxpayer as a refund.1 In addition, half of the credit will be prepaid; advance monthly payments will be distributed over the six-month period from July 2021 through December 2021 with a maximum of $250-$300 per child. The other half will be credited after filing a 2021 tax return.
Income eligibility phaseouts for the expanded portion of the credit begin at over $75,000 for individuals ($150,000 married). Phaseouts for the original $2,000 credit per child remain at $200,000 for individuals ($400,000 married).
The expanded credit is for tax year 2021; the credit reverts to previous amounts in 2022.