Provisions you may not know about in the Consolidated Appropriations Act
Every year Congress passes a package of legislation referred to as the tax extenders, and this year is no different. The Consolidated Appropriations Act, 2021, H.R. 133 contains the omnibus spending for 2021 and coronavirus relief provisions along with a number of tax extenders and some added benefits to the tax code.
Among the Act’s many provisions, there are some well publicized areas including another round of COVID-19 stimulus payments; a second draw on PPP loans and some clarification of the tax treatment; enhanced employee retention credit, continuation of unemployment benefits, rental assistance and extension of the Family Medical Leave Act benefits.
However, there are a number of provisions in the Act that have been getting less attention. Here is a summary:
- Expanded business meals deduction: The bill allows for 100% business expense deduction for meals, increased from the current 50%. The provision stipulates that the expenses must be used for food or beverages provided by a restaurant. This provision is aimed at helping the struggling hospitality industry, which has been hit hard by the pandemic. The expanded meals deduction is effective for expenses incurred after December 31, 2020 and expires on December 31, 2022.
- Increased charitable deduction: The bill extends the $300 charitable deduction allowed for in the CARES Act for nonitemizers for 2021. Further, the Act modifies the charitable deduction by increasing the limit of the deduction to $600 for married filing jointly taxpayers.
- Payroll tax deferral modification: In an executive memorandum over the summer, President Trump allowed employees to defer their portion of payroll taxes, at the employer’s election. The deferral applied to payroll taxes paid from September 1, 2020 through December 31, 2020. Employers are required to increase withholding to make up for the deferred amounts between January 1 and April 30, 2021. The Act extends the repayment period through December 31, 2021.
Provisions made permanent: Contrary to usual practice, a few provisions from the extenders package were made permanent this year. The now permanent provisions include:
- Reduction in medical expense deduction floor for medical expenses that exceed 7.5% of adjusted gross income, decreased from the historic 10%
- Deduction for businesses with energy efficient commercial buildings under IRC Section 179D
- Exclusion from income of some benefits provided to firefighters and emergency medical responders
- An increase in income limitations for phaseout of the lifetime learning credit and a repeal of deduction for qualified tuition and related expenses
- Railroad track maintenance credit
- Certain provisions related to beer, wine and distilled spirit production
Provisions extended through 2025: A handful of provisions were given a 5-year extension including:
- Look-thru rule for related controlled foreign corporations
- New markets tax credit
- Work opportunity tax credit
- Exclusion from gross income of discharge of qualified principal residence indebtedness
- 7-year recovery period for motorsports entertainment complexes
- Expensing rules for certain TV, film and theater productions
- Oil spill liability trust fund rate
- Empowerment zone tax incentives
- Employer credit for paid family and medical leave (TCJA credit)
- Exclusion for certain employer payments of student loans
- Extension of the carbon oxide sequestration credit
Extension of other provisions: A large amount of expiring provisions were given varying levels of extension under the Act. The provisions that were extended are as follows:
- Credit for electricity produced from certain renewable resources
- Extension and phaseout of energy credit
- Treatment of mortgage insurance premiums as qualified residence interest
- Credit for health insurance costs of eligible individuals
- Indian employment credit
- Mine rescue team training credit
- Classification of certain racehorses as 3-year property
- Accelerated depreciation for business property on Indian reservations
- American Samoa economic development credit
- Second generation biofuel producer credit
- Nonbusiness energy property
- Qualified fuel cell motor vehicles
- Alternative fuel refueling property credit
- Two-wheeled plug-in electric vehicle credit
- Production credit for Indian coal facilities
- Energy efficient homes credit
- Extension of excise tax credits relating to alternative fuels
- Extension of residential energy-efficient property credit and inclusion of biomass fuel property expenditures
- Black lung disability trust fund excise tax
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