The challenges of managing through the COVID-19 pandemic have impacted each Atlanta individual and family differently. While some have been able to tolerate the changes with little difficulty, others have been required to make tough decisions about expenses and finances. As the pandemic has persisted the related challenges continue to grow. Earlier this week President Trump signed the Consolidated Appropriations Act, 2021, which included the COVID Related Tax Relief Act of 2020 (the Act) that provides the comprehensive relief many have been awaiting. This includes economic impact payments, extended unemployment benefits, and an expansion of penalty-free plan withdrawals. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key information below.
- Economic Impact Payments – The Act approves a second economic impact payment for $600 for individuals earning up to $75,000 per year and $12,000 for couples earning up to $150,000 per year. In addition, there will be an extra $600 payment for each dependent child with no household cap. It is important to note the size of the payment will decrease for those earning more than $75,000 per year and phases out for incomes greater than $99,000. Treasury has indicated the payments will start being sent this week.
- Unemployment Benefits – The Act provides a number of unemployment relief benefits and programs to ensure those who are facing employment challenges are not left without some assistance. The changes include an extension of federal unemployment assistance of $300 per week, an extension of the Pandemic Unemployment Assistance (PUA) program and the Pandemic Emergency Unemployment Compensation (PEUC), and an increase in the maximum time period benefits can be claimed to 50 weeks.
- Charitable Contributions – To help Atlanta nonprofits generate additional contributions while giving individuals a tax break, the Act has extended the charitable contribution deduction. For those filings as individuals the deduction is worth $300, while those filing as married filing jointly, the deduction is worth $600. Since this is an above-the-line deduction taxpayers will not need to itemize to receive the benefit.
- Penalty-Free Plan Withdrawals – When the CARES Act was passed in March it included a provision that allowed plan participants to make penalty-free withdrawals for qualifying COVID-19 expenses. There were several plan types that were included but unfortunately, money purchase pension plans were left out. The Act changes this retroactively allowing plan participants access to the same benefit.
- Temporary Lookback – Many taxpayers rely on both the Earned Income Credit and the Child Care Credit to generate tax savings. Since the credits are calculated based on income earned many individuals may receive a lower benefit amount if wages were reduced because of the pandemic. The Act provides a temporary lookback period which allows taxpayers to use 2019 income when calculating the credit.
- Educator Expense Tax Deduction – During the pandemic teachers and other educators have been forced to make personal protective equipment (PPE) purchases with little to no reimbursement from school administration. To help these individuals, the Act modifies the deduction to allow PPE, disinfectant, and other items used to prevent the spread of COVID-19 as qualifying expenses.
- Flexible Spending Accounts (FSAs) – The Act made several changes to FSAs which will provide additional benefits to individuals. Participants will now be allowed to roll unused funds into 2021 and then again in 2022. Terminated employees with remaining contributions are now eligible to receive reimbursements for qualifying expenses through the end of the plan year. Since the grace period has also been extended for 12 months this will create an additional element of relief for managing healthcare expenses.
Contact Us
The changes outlined in the Act will provide individuals and families with additional assistance heading into the new year. If you have questions about the information outlined above or need assistance with tax planning or compliance, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.