It takes some time to summarize a 5593 page law.  Today, we’ll finish up the tax provisions.  These are for individual taxes.  (You can find Part 1 and Part 2 here.)

Individual Income Taxes

While I have been talking for the past two days about business provisos, the extension/modification of the CARES Act also covers some individual tax breaks.

EITC and CTC

This may be a little more subtle benefit.  However, the law stipulates that taxpayers can receive an Earned Income Tax Credit or a Child Tax Credit based on their 2019 income.  We may not realize that the EITC and CTC are generally only provided to taxpayers who have EARNED income (that must be at least $ 1); this change means that if someone lost their job or earned no taxable income can rely on their 2019 status and income to obtain these funds.  And, since a drop in income lowers often lowers the credit, being able to choose 2020 or 2019 income is a valuable benefit for some taxpayers, whose situation has taken a turn for the worse.   (Unfortunately, that’s true for more than 10% of the US taxpayers.)

Charitable Donations

I’ve already written that there is a $ 300 above the line deduction for charitable donations for 2020 income. (That means, if we don’t itemize- which is happening less and less often, we can still get a small benefit from our charitable actions.)  For CY 2020, this proviso is limited to $ 300 per return.  (To get a  $ 600 break, married couples would have to file separately in 2020. But, filing separately also kills a bunch of tax breaks, including the EITC and CTC mentioned above.)  The change in the law now lets folks file jointly and obtain the $ 600 above the line deduction for CY 2021.   However, for both years, there is a wrinkle.  (You know that a certain party only wants to benefit the wealthy, not the rest of us...)  The deduction reduces one’s taxable income, but not the adjusted gross income.  That means the 3.8% surtax on investment income,  income-based Medicare premiums, and IRA contribution limits are not affected.

FSA carry forward

Because schools were closed and folks were working from home, many taxpayers could not utilize the full amounts of their Flexible Spending Arrangements (FSA) deductions.  Normally, there is a use-it-or-lose-it proviso for those funds.  But, this year (and next) the unused FSA funds can be carried forward for use next year.  (That means unused FSA from 2020 can be used in 2021 and unused 2021 FSA funds can carry forward for use during 2022.)

Educator Deduction

This year the $ 250 deduction available to teachers now lets personal protection equipment (PPE) be included. No, they did not increase the total deduction.  So, I guess it’s the teacher’s choice to buy materials kids need or to protect themselves.

Itemized Deductions- Medical

The act has returned the medical expense deduction to its original limitation.  For 2019, there was a special rule that medical expenses beyond 7.5% would be included in itemized deductions.  The new law now permanently sets this threshold at 7.5%.

Lifetime Learning Credit

For calendar year 2021 and beyond, the qualified tuition deduction has been replaced.  Now, one applies the Lifetime Learning credit which begins phasing out at $ 80K of taxable income ($160K for married couples filing jointly).

Whew.  A few thousand words.  A few days.  But now you know how the tax laws have changed.