COVIDTRA for Individuals: A Closer Look at Certain COVID-19-Related Tax Relief

On December 27th, President Trump signed the COVID-Related Tax Relief Act (COVIDTRA), a $908 billion coronavirus relief package, into law. Among other provisions, the legislation includes a number of new and expanded tax provisions, as well as extensions on existing provisions, affecting individuals. I want to take a look at a few of those here.

Charitable Deductions

For individuals, the Act extends the provision allowing for above-the-line charitable contributions of up to $300 for taxpayers who do not itemize through 2021. It also increases the maximum deductible amount to $600 for married couples filing jointly. The penalty for taxpayers who overstate this deduction has increased to 50% of the underpayment (previously 20%). For individuals who do itemize, the Act extends the increased limit for deductible cash charitable contributions established by the CARES Act (100% of AGI, rather than 60%) through 2021.

Educator Expenses for PPE

The Act allows for certain COVID-19 and personal protective equipment (PPE) expenses paid by eligible educators (kindergarten through 12th grade teachers and instructors) to be included in their $250 above-the-line deduction. The deduction is already in place (and otherwise unchanged) for teaching related expenses, such as books, supplies, and computer equipment.

Flexible Spending Accounts 

The Act contains temporary rules for health and dependent care flexible spending arrangements (FSAs), which allow taxpayers to roll over unused amounts for plan years ending in both 2020 and 2021. 

Money Purchase Pension Plans 

Under the CARES Act, individuals can make coronavirus-related distributions of up to $100,000 without incurring the 10% penalty and regardless of their age. Distributions may either be used as an interest-free loan for 3 years, or it may be taxed as income spread over 3 years (without the usual 10% penalty). COVIDTRA retroactively adds money purchase pension plans to the list of plans eligible for these rules. 

Extension of Existing Tax Provisions

A number of popular tax extenders provisions were set to expire at the end of 2020 and have been extended by COVIDTRA. 

Medical Expenses – The Act makes the reduction from 10% to 7.5% in the medical expense deduction floor a permanent change.

Gross income exclusion for discharge of indebtedness on a principal residence – COVIDTRA extends this provision by 5 years, so it now expires December 31, 2025. 

Nonbusiness Energy Property – The Act extends the 10% credit for qualified nonbusiness energy property by 1 year (through 2021). 

Residential Energy Credit – COVIDTRA extends the Residential Energy Credit by 2 years (through 2022). Additionally, it makes qualified biomass fuel property expenditures eligible for the credit. 

Economic Recovery Payments (EIP)/Recovery Rebates

The Act includes another round of Economic Recovery Payments (EIP), also referred to as Recovery Rebates, to individuals. Each qualifying individual will receive $600, plus $600 per qualifying child, and there is no cap on household size. Eligibility is based on 2019 income, with the payment beginning to phase out at $75,000 for single filers, $112,500 for heads of household, and $150,000 for those married filing jointly, and fully phasing out at $87,000 for single filers with no qualifying dependents and $174,000 for those married filing jointly with no qualifying dependents.

We’re here to help

ARB is dedicated to updating our clients and community as the legislative implications of the COVID-19 pandemic continue to unfold. COVIDTRA is extensive, but we’re here to help. This article isn’t meant to be all-inclusive, so we welcome any COVIDTRA-related questions. For more information, contact us today. 

Please visit our COVID-19 Financial Resource and Tax Center for additional information on related matters, and stay on the lookout as we release more in the coming days.

 

by Dan Doiron, CPA, CVA 

Dan has been in public accounting since his college internship with ARB in 1986. He has been a Principal since 1996 and works extensively with all types of clients to solve their compliance and tax planning issues. Dan was the May 1987 State of Maine Gold Medalist for earning the highest scores on all four parts of the CPA Examination. He is the Practice Leader of both ARB’s Business Tax Services Team and ARB’s Private Client Advisory Services Team.