Highlighted below are six key provisions impacting individuals:
1. Recovery Rebate Payment:
A $600 recovery rebate credit will be paid in advance for each eligible family member, including qualifying children. For instance, a married couple with two qualifying children would be eligible for $2,400, prior to any income phase-outs. Phase-outs begin at a rate of $5 per $100 of additional income starting at $150,000 of modified adjusted gross income for individuals filing as married filing joint or as a surviving spouse. The phase out is adjusted to $112,500 for heads of household and $75,000 for single taxpayers. The Treasury will calculate the payment amount based on the 2019 individual income tax return. If eligibility is later determined when filing the 2020 income tax return, a refundable credit will be provided to the taxpayer if no advance credit was previously provided. These payments are anticipated to be made in early 2021 and are in addition to the Economic Impact Payments made earlier during 2020.
2. Charitable Contributions for Standard Deduction:
Taxpayers who utilize the standard deduction and do not itemize deductions will be able to receive a deduction for charitable contributions for tax years 2020 and 2021. This above-the-line charitable contribution deduction is for payments made to qualified charitable organizations:
|Married Filing Jointly||$300||$600|
|All other filers||$300||$300|
In previous tax years, charitable contributions were not deductible unless the individual itemized deductions on Schedule A.
3. Charitable Contributions for Itemized Deductions:
Cash contributions to a qualified charitable organization may be included up to 100% of an individual’s adjusted gross income for tax years 2020 and 2021. Prior to the COVID pandemic, cash contributions were limited to 60% of an individual’s adjusted gross income. Please note that these contributions must be in cash and paid directly to the qualified charitable organization and this limit does not apply to contributions made to a donor advised fund.
4. Deductible Medical Expenses:
This Act has made a permanent change to include medical expenses in excess of 7.5% of adjusted gross income on Schedule A for purposes of determining total itemized deductions. This rate is down from 10% and will allow for additional medical expenses to be included as a deduction.
5. Mortgage Insurance Premium Deduction:
Mortgage insurance premium payments will be deductible through tax year 2021, subject to income-based phase-outs.
6. Business Restaurant Meals 100% Deductible:
Business meal expenses paid directly to a restaurant that were previously limited to 50% for income tax purposes are now 100% deductible for tax years 2021 and 2022.
Please reach out to your Parsec Financial representative for additional information and to discuss your unique situation.