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Congress Passes Consolidated Appropriations Act, 2021

In what has become an annual tradition, in late December Congress passed more late-year legislation. Here are the highlights:

• For tax years 2021 and 2022, business meals that meet all other requirements for deduction and where the food or beverages are provided by a restaurant, will be 100% deductible instead of 50% deductible.
• The $250 educator expense deduction now also applies to PPE and other COVID-related supplies. The Act provides that eligible educators (i.e., kindergarten-through-grade-12 teachers, instructors, etc.) can claim the existing $250 above-the-line educator expense deduction for personal protective equipment (PPE), disinfectant, and other supplies used for the prevention of the spread of COVID-19 that were bought after March 12, 2020.
• The 7.5%-of-AGI "floor" on medical expense deductions is made permanent. The Act makes permanent the 7.5%-of-adjusted-gross-income threshold on medical expense deductions, which was to have increased to 10% of adjusted gross income after 2020.
• The mortgage insurance premium deduction is extended by one year. The Act extends through 2021 the deduction for qualifying mortgage insurance premiums, which was due to expire at the end of 2020. The deduction is subject to a phase-out based on your adjusted gross income.
• A NEW above-the-line charitable contribution deduction is extended through 2021. For 2020, individuals who do not itemize deductions can take up to a $300 above-the-line deduction for cash contributions to "qualified charitable organizations." The Act extends this above-the-line deduction through 2021 and increases the deduction allowed on a joint return to $600 (it remains at $300 for other taxpayers).
• The nonbusiness energy property credit is extended by one year. A credit is available for purchases of  "nonbusiness energy property"—i.e., qualifying energy improvements to a taxpayer's main home. The Act extends this credit, which was due to expire at the end of 2020, through 2021.
• Additional Economic Impact (Stimulus) Payments up to $600 to eligible taxpayers or up to $1,200 for married couples filing joint returns are being sent out. Parents will get an additional $600 for each dependent child under age 17. Thus, a married couple with two children under 17 will get a $2,400 payment. As with the first batch of payments sent out earlier in 2020, there are income limits above which these payments are phased out. 

• Most people will not have to do anything to get an economic impact payment. The IRS will calculate and send the payment automatically to those who are eligible. If you have filed your 2019 tax return, IRS will use the AGI and dependents from that return to calculate the payment amount.

  IRS will deposit the payment directly into the bank account reflected on the return. IRS has developed a web-based tool called Get My Payment, www.irs.gov/coronavirus/get-my-payment, for individuals to provide banking information to IRS, so that payments can be received by direct deposit rather than by check sent in the mail. The tool includes the date the payment is scheduled to be issued to the individual.

  Payments are nontaxable. The economic impact payment that you receive will not be included in your income for tax purposes. It will not cause you to owe tax or decrease your refund for 2020.