Six Tax Implications of the 2020 COVID Relief Bill

The Consolidated Appropriations Act, 2021 includes COVID-related relief in the form of the COVID-related Tax Relief Act of 2020 (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR). COVIDTRA and TCDTR include multiple provisions impacting businesses and individuals to provide relief and stimulate the economy.

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:

2020 2021
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.

Justin White, CPA
Tax Manager


Recent Posts:

How To Evaluate Taking on “Fun” Debt

Personally, there is nothing more relaxing and exhilarating than being on a sailboat with a 15-knot wind on your beam (side), listening to the soft sounds of water splashing against the bow and using wind energy to propel the boat forward.

Tax-Loss Harvesting Amidst Market Turmoil

Market declines like the one we are currently experiencing present great opportunities to take advantage of cheaper asset prices. Almost everyone with a taxable account should be harvesting tax losses during times like these.

“What If” Contingency Planning

We want to ensure you are thriving, as living a healthy and successful life is truly priceless. Of all the steps that can be taken toward financial security and peace of mind, planning our own death and incapacity is the least popular. Life goals dominate our consciousness, and these goals are often about ourselves. Estate planning is not as much about us as it is about the people and things that we love.

Recent Quarterly Newsletters:

Thrive By Ensuring Your Loved Ones Are OK Edition

Our Q3 2022 newsletter focuses on how to thrive by ensuring your loved ones are OK. In it, we have created an eight-page fillable guide you can create for loved ones to follow after you pass. We also provide other guidance on estate planning, caring for aging parents and preparing for a potential disability.

Thrive by Learning and Growing Edition

Read our Q2 2022 newsletter on how to thrive by learning and growing. CEO Rick Manske reflects on graduation season and what this time of achievement and change means for students and loved ones. CIO Bill Hansen writes about education savings; President Harli Palme writes about tax savings related to college expenses; Portfolio Manager Nancy Blackman cautions about hidden costs of college. Advisor Charles Thompson outlines why it’s important that we value and prioritize travel. Advisors Judd Meinhart and Hilary Daniel write about job transitions and what to do with your 401(k) and new benefits. Advisor Neal Nolan ends with 10 ways to celebrate Independence Day and we highlight announcements across our firm. We hope you enjoy this edition!

Recent Whitepapers:

Stay Up To Date With Parsec

Sign up to join our mailing list and receive quarterly newsletters, whitepapers, news, and more right in your inbox.
Scroll to Top

Not a Client But want to receive updates?

Please sign up to join our mailing list and receive our latest news, thought leadership content and invitations to upcoming webinars.