The new COVID-19 stimulus bill has passed both the House and the Senate at lightening speed, and is on to the president’s desk for his signature. Assuming he signs it, we get a 4th Trump administration major tax overhaul in his 4 years (not evenly distributed, of course; TCJA in 2017, and all the rest in 2020 due to COVID-19). Normally we get a major tax overhaul every ~30 years.

But it would be misleading to call this just a tax overhaul. It’s far more than that – it’s got plenty of COVID-19 related components, it’s got other tax and student loan related pieces, it’s got international spending components, it’s got the kitchen sink. And it’s a whopping 5593 pages of legalese, to be properly referred to as the Consolidated Appropriations Act of 2021.

First pass high points relevant for the Rochester and Olmsted County Minnesota area include:

• Stimulus checks
  • Yes, more direct checks were included. But the maximum benefit per person is $600 this time, and that does include children young enough to still qualify for the Child Tax Credit.
  • The same income phase outs as last time were used.
  • This will also be a 2020 refundable credit; if you didn’t qualify based on your 2018/2019 tax return (latest on file), you could get it on your 2020 tax return, if your income had dropped. And it won’t be owed back if you were eligible based on your 2018/2019 return but then your income went up in 2020.

• Unemployment
  • First, the bad news. There is no retroactive extra money for unemployment checks between when the previous version ended this summer, and now.
  • But there is more money coming for those receiving unemployment now. Instead of +$600/week, it will now be +$300/week, starting next week.
  • There’s another extension of the duration in which you’re allowed to collect unemployment, another 11 weeks.

• Housing
  • The eviction moratorium is extended through January 2021.

• Income Taxes
  • After bouncing back and forth for several years now, the medical expenses deduction threshold will settle back down at its prior rate of 7.5% of your AGI.
  • The Tuition and Fees deduction for college is going away, but there will be higher income limits on the American Opportunities Tax Credit and the Lifetime Learning Credit.
  • Short term extensions were added to a number of sunsetting tax credits, including both the energy credit and the electric vehicle credit.
  • If you didn’t have much for earned income for 2020 (because unemployment isn’t earned income), and would therefore not be eligible for the EIC or Additional Child Tax Credit, you can use your 2019 earned income for this calculation.
  • Donations – 2020’s $300 donation deductability without needing to itemize becomes 2021’s $600 (MFJ).

• Payroll Taxes
  • While not a big thing in Olmsted County because not a lot of employers chose to opt in, if your employer didn’t withhold payroll taxes for you for the last 3/4 of 2020, you were about to have been hit with a rapid collection of that money come early 2021. Now that’s been pushed off until this time next year.

• Employee benefits
  • Employers can now give employees $5,250 per employee per year, tax free, for student loan payments. That’s way better than a $5k pay bump, for those with student loans.
  • Dependent Care Flexible Spending Accounts (DCFSA’s) and Health Care Flexible Spending Accounts (HCFSA’s)
    • 2020 funds can carry over to 2021. And because of Open Enrollment timings, they also allowed 2021 funds to carry over to 2022.
      • BUT this is an employer opt in scenario. If your employer already didn’t opt in for the increased HCFSA roll over amounts previously allowed this year (a common problem for employees in Olmsted County), it seems logical that they may not opt-in for this either. If you have any pull with your HR department, now’s the time to lobby.
    • For 2021, you should be able to change your election at any time, which isn’t normally allowed.

• Teachers
  • For those of you brave teachers working in person, if you purchased PPE or cleaning supplies out of your own pocket, you can include those in the $250 you are able to deduct from your taxes as an educator expense.
    • Unfortunately the $250 threshold was not raised.

• Businesses
  • Paycheck Protection Program (PPP) loans will be forgivable without tax consequences
  • The PPP program will be extended and expanded.
    • But, you HAVE to have participated in the original version to be able to participate in the new iteration. There may still be hope to get in on that, as the original version is getting more funding.
    • And, you only get one loan this time around, no going for multiple smaller amounts.
    • Maximum number of employees, and qualifying income loss, both changed.
    • Loan amounts are lower.
  • The employee retention credit got a short duration boost, and it has also been improved.
  • For 2021 and 2022, business meals will be 100% deductible, if they are provided by a restaurant.
  • For the self-employed, your pandemic unemployment insurance benefit is extended as well, through spring 2021.

• College
  • As a ride-along, the FAFSA will be dramatically revised. That includes what questions it asks, along with the completely superficial nominclature change from “Expected Family Contribution” (EFC) to “Student Aid Index” (SAI).
  • To discourage families from not filing their tax forms, and therefore trying to work the FAFSA system, failure to file your taxes will set you up badly for the Student Aid Index calculation.

• Miscellaneous
  • Starting in 2022, there will be more restrictions on surprise medical billing. It still will have a lot of holes in it, but it’s a step in the right direction.

Whew, what a list. Obviously, this is just a first pass take, there may be more clarity coming as certain components get hashed out over time.

I don’t think I’ve ever gotten to select so many categories for a blog post…

There is one other side impact of this new Consolidated Appropriations Act. The IRS has already been hard hit by increased duties with the original round of stimulus checks that started this spring (and still aren’t done), plus COVID-19 impacts on their staffing. They now also have to write tax code for some of the above items, and revise a bunch of tax forms, while we’re facing the holidays, high COVID-19 levels nation-wide, and the start of the 2021 tax season. It seems safe to guess there may be delays in when the 2021 tax forms will be available. This will therefore impact tax preparation companies and their employees, plus anyone hoping to file quickly for a refund.