Tax Updates for Individuals
We hope you all had a great holiday season.
We are jumping straight from one tax season to another. More on that to come later.
Today, I want to let you know about some of the items that were included in the large stimulus package (The Consolidated Appropriations Act) that was passed in the last few days of the year. There is a lot to it coming in at over 5,000 pages, the largest bill to date. The items below do not list out everything that is included in the bill but are the items that I believe to be most helpful for our client base.
Here are the highlights:
· New recovery rebates – Starting immediately a second round of rebates will be direct deposited into your bank accounts if you meet the income thresholds. The amount of the rebate is $600 per taxpayer, in addition $600 per qualifying child. This is a credit, same as the last and it starts to phase out at $75,000 for singles, $112,500 for head of household, and $150,000 for married filing joint. If you do not receive a payment the credit will be reassessed on your 2020 tax return.
· $250 educator expense deduction applies to PPE – PPE will be able to count towards the $250 educator expense deduction.
· Emergency Financial Aid Grants for Students – Previously tax-exempt income was not able to be used in order to qualify for the American Opportunity Tax Credit, nor the Lifetime Learning credit. With this new bill any CARES Act emergency financial aid grants will be excluded when considering these potential credits.
· Child Tax Credit & Earned Income Tax Credit – For the 2020 tax return you will be able to elect to utilize the 2019 or 2020 earned income amounts whichever leads to a higher refundable credit.
· Charitable Donations for Non-Itemizers – For 2020, individuals who do not itemize will be able to deduct up to $300 of charitable donations as an above the line deduction.
· Limitations on Charitable Donations for those that Itemize – Previously donations were limited to 60% of their AGI. For 2020-2021 this rule will not apply.
· FSA Accounts – The grace period for plan years ending in 2020 and 2021 will now be 12 months after the end of the plan year. If you have an FSA plan with your employer, you should expect to see a notice from them.