There’s no doubt about it—2020 was a weird year. And between the fallout of the pandemic and a new administration, we have plenty to update you on. Here’s what’s going on.

Stimulus Payments—The Second Time Around

In addition to last spring’s economic impact payments, the federal government authorized a second round of stimulus in December 2020. Most taxpayers who have a bank account on file with the IRS have now received the payment, while those who do not should soon receive a check in the mail. If you receive a pandemic payment, the IRS should send you notice 1444. Make sure you keep this letter for your 2020 tax filing.

What’s Changed Since the First Round:

Payment Amount
The first round of stimulus distributed $1200 to each eligible adult and $500 to each dependent child under 17. The second round earmarked $600 for each person, regardless of age.

Eligibility
Not everyone who received a check the first time around is getting one this time. The cut-off income for receiving the entire stimulus payment is the same—an adjusted gross income of $75,000 for a single person, $150,000 for a married couple, or $112,500 for a qualified head of household. However, the phase-out at higher income levels is much more rapid this time around. For the first round of stimulus, the payment reached zero for a single person at an AGI of $99,00. This time around, it’s 87,000 if you’re a single filer ($174K as MFJ). Generally speaking, if your AGI is more than $75,000 or $150,000 if you are filing jointly as a married couple, your payment will go down by $5 for each $100 you earned over that threshold.

Boost to Allowable Deductions

The federal government’s efforts to boost the economy have also included targeted expansions of tax deductions. Make sure you’re aware of these updates when you file this year and as you plan for 2021.

Full Deduction for Business Meals

It’s no secret that the restaurant business has been especially hard-hit by the COVID-10 pandemic. That’s why the Consolidated Appropriation Act included a unique tax break meant to spur spending on dining out. As of January 2021, businesses may claim 100% of the cost of their business meals, doubling the long-standing 50% deduction. This deduction is currently slated to last until December 31, 2022. The rules defining a business meal have not changed, and the food and beverage must be provided by a restaurant for the costs to be deducted.

Charitable Contributions

Since the Tax Cuts and Jobs Act radically expanded the standard deduction in December 2017, reducing the number of itemizers in the tax base, few taxpayers have been able to take advantage of the charitable contribution deduction.

However, the CARES Act changed the game for filers in 2020 and 2021, allowing non-itemizers to claim up to $300 in charitable giving for the 2020 tax year (expanded to $600 for a married couple filing jointly in the 2021 tax year). If you plan to take advantage of this deduction, make sure to keep your receipts. The IRS has increased its penalty for non-itemizers who overstate charitable giving to 50% of the tax underpayment.

For itemizers, the contribution limit for the 2020 and 2021 tax years has increased to 100% of AGI (typically, the limit is 60% of AGI). For corporations, previously limited to deducting 10% of taxable income, the limit has been raised to 25%. The limit on deductions for food inventory has also been increased to 25% of taxable income for both corporations and individuals.

Rental Assistance Grants and Eviction Moratorium

Due to the impacts of COVID-19, millions of Americans are currently behind on rent. Others are resorting to taking loans from families, relying on credit cards, or finding other unsustainable ways to scrape by. But there’s good news for struggling renters, as well as their landlords.

The Additional Coronavirus Response and Relief Act (ACRRA), passed in January 2021, extended the federal government’s moratorium on evictions and foreclosures through March 2021. It also expanded its rental assistance grant program, designed to keep renters in their homes and protect landlords’ incomes.

Eligible renters can receive up to 12 months of assistance with their rent and utility expenses tax-free. For landlords, rent paid by the government is considered taxable income, the same as it would be if paid from the tenant’s personal funds.

Tenants can apply directly for these funds, and landlords can also apply on their tenants’ behalf if they obtain the tenant’s signature and provide them with a complete copy of the application.

Eligible expenses:

• Current and back rent
• Current and back utilities, home energy cost, etc.
• Other expenses related to housing due to COVID-19

Eligible recipients include those who:

• Qualify for unemployment benefits
• Experienced reduction in household income, incurred significant cost, or experienced other financial hardship due to COVID-19
• Can demonstrate a risk of homelessness or housing insecurity
• Have a household income at or below 80% of the area’s median household income.

For more information and to apply, visit the US Treasury Department’s Emergency Rental Assistance Program page.

Tax season is hard enough in a normal year, and we know it can be hard to keep track of these changes. If you have a concern we didn’t address, feel free to schedule a complimentary call anytime.