Other Provisions in the New Law
The House of Representatives and the Senate both passed the Consolidated Appropriations Act of 2021 on December 21, 2020, and the President is expected to sign it into law. While the main purpose of the Act is funding the federal government through the end of the government’s current fiscal year, it includes many tax-related provisions.
In addition to the items discussed separately in other posts to our Tax News, the Act includes the following other changes.
Business Meals: Effective on January 1, 2021 through December 31, 2022, the deduction for food or beverages provided by a restaurant is increased from 50% to 100%.
Earned Income Credit: If the earned income of a taxpayer in 2020 is less than the earned income in 2019, the taxpayer can use the 2019 earned income when computing the 2020 earned income credit. (Higher earned income can result in a higher credit, in some circumstances.)
Flexible Spending Arrangements (FSAs): FSAs are permitted to carry over unused balances from the 2020 tax year into 2021. The limits for such accounts are discussed on page 82 of the Tax Year 2020 M+O=CPE Individual Tax Year-End Workshop Reference Book.
Deferral of Payroll Taxes Under Presidential Executive Order: As discussed on pages 45 to 46 of the Tax Year 2020 M+O=CPE Individual Tax Year-End Workshop Reference Book, employers were permitted, but not required, to defer collecting the employee-share of Social Security for compensation paid during the period of September 1, 2020 to December 31, 2020. Employees are required to repay such deferred amounts. The original repayment period was January 1, 2021 to April 30, 2021. The Act changes the repayment period from January 1, 2021 to December 31, 2021.
Advances from Economic Injury Disaster Loans: As discussed on page 28 of the Tax Year 2020 M+O=CPE Individual Tax Year-End Workshop Reference Book, some taxpayers received advances from the SBA when they applied for economic injury disaster loans. The Act specifies that such advances are not included in the income of a taxpayer. The Act also specifies that such advances do not have to be repaid in conjunction with the Payroll Protection Program (PPP).
Disaster Relief: Tax-related disaster relief is provided for various areas of the country that suffered from wildfires, storms and other natural disasters during the period beginning January 1, 2020 and ending 60 days after the enactment of the Act.