The Consolidated Appropriations Act

Date: January 13, 2021
Category: News & Events

After months of debate between Democrats and Republican lawmakers concerning additional economic stimulus relief, Congress passed what many are referring to as the “Coronavirus Stimulus 2.0” bill as an amendment to the 5,000+ page Consolidated Appropriations Act of 2021. Signed into law by President Trump on December 27, 2020 the legislation provides another round of stimulus payments for some Americans, to the tune of $600. It also extends unemployment benefits for another 11 weeks.

In addition to the stimulus payments and unemployment extension, several provisions of the legislation warrant further attention for their financial planning implications. Let’s examine a few of these highlights that could impact your financial planning efforts.

Permanent Reduction in AGI Hurdle for Medical Expense Deductions

Section 101 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 permanently restores the AGI hurdle rate for medical expenses to 7.5% of AGI. In recent years, the hurdle rate has vacillated between 7.5% and 10% of AGI. With the change the 7.5% rate is restored and gives taxpayers who face high medical costs some tax relief.

100% Deductible Meal Expenses for 2021 & 2022

Section 210 of the Taxpayers Certainty and Disaster Tax Relief Act of 2020 gives taxpayers an incentive to support an industry that was devastated in 2020: restaurants. The Act provides taxpayers with business expenses, business owners, and sole proprietors with a full 100% deduction for business-related food and beverage expenses incurred at restaurants. It is important to note that the legislation only permits full deduction for tax years 2021 and 2022, and is not retroactive to restaurant expenses incurred in 2020.

Exclusions of Employer Payments of Student Loans Extended Through 2025

The CARES Act enacted earlier this year allowed employers to provide up to $5,250 of annual tax-free education assistance used to pay the principal or interest on an employee’s qualified student debt. This legislation extends the tax-free education assistance through 2025. These payments may be made directly to the lender, or they can be made directly to the employee who can then use the payments to discharge their student debt.

Carryforward Relief for Flexible Spending Arrangement Funds

Section 214 of the Taxpayer Certainty and Disaster Relief Act of 2020 permits employers to allow employees to carryover unused 2020 plan balances in Flexible Spend Accounts into 2021. It will also allow remaining balances at the end of 2021 to be rolled forward into 2022.

Tax Treatment of Forgiven PPP Loans

Forgiven PPP loans will be treated as tax-exempt income, retroactive to the effective date of the CARES Act. Gross income does not include loan forgiveness for Economic Injury Recovery Loans (EIDLs) and certain other loans or loan repayment assistance. Under the CARES Act, taxpayers receiving an EIDL were required to reduce any PPP loan forgiveness by the amount of the EIDL.

What is NOT Addressed in the Appropriations Act

In 2020 a temporary waiver of Required Minimum Distributions (RMDs) was applied for defined contribution accounts, such as traditional IRAs and 401(k)s. That waiver was not extended with the latest legislation, so taxpayers should not count on this relief again in 2021. It is not out of the realm of possibility to believe that the waiver could be extended in 2021 if economic conditions worsen or stock markets slump significantly.

The Appropriations Act of 2021 does not extend the student loan relief efforts that were included in the CARES Act, which suspended collection efforts on loans in default, suspended required loan payments, and set the interest rate on student loans to 0% through September 30, 2020. Further efforts extended this relief through January 31, 2021. Student debt holders should plan to resume payments in 2021 if no further debt relief is offered.

Understanding the provisions contained within this legislation can be difficult and time-consuming, but we are ready to help. Please call our office at 419-878-3934 to schedule time to discuss how your financial planning efforts may be impacted by this new bill.