The new stimulus deal includes 6 tax breaks that could help Americans
The $ 900 billion coronavirus aid deal passed Monday night, which was annexed to the $ 1.4 trillion bus spending bill to fund the government, includes six tax breaks for Americans for 2020 and beyond.
"It's an important piece of law that helps people and businesses during the winter as we wait for the pandemic to end," said Erica York, an economist at the Tax Foundation, a think tank focused on US tax policy. "We shouldn't ignore the size either. We saw enormous financial support from the pandemic and the associated downturn."
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Here are the tax breaks included in the coronavirus stimulus portion of the legislation:
The deal's biggest tax perk is the direct payments to Americans, which are tax credits, just like the first round of payments under CARES. These payments of up to $ 600 per adult and $ 600 per child are available to individuals and married couples who meet certain income thresholds. (More information can be found here.)
If you were supposed to receive a higher amount based on your 2020 income but received a reduced amount based on your 2019 income, the government will pay you the difference when you file your 2020 taxes. If your payment is too high based on your 2020 income, you are not responsible for repaying the difference.
While most eligible people get their payments, those who don't can get them when they file their taxes.
An Uncle Sam balloon floats down Sixth Avenue during the 87th Macy's Thanksgiving Day Parade in New York on November 28, 2013. (REUTERS / Eric Thayer)
Earned Income Tax Credit and Child Tax Credit
The business cycle statement also adjusts how the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) are calculated for the 2020 tax year. A taxpayer can choose either their 2019 or 2020 income to determine creditworthiness, whichever is most beneficial to them.
"This will help people whose incomes fell in 2020 because they lost a job or cut their wages," York said. "Both loans have phase-ins that are based on income. So if income shrinks, loan amount can shrink."
According to analysis by Commonwealth, a nonprofit that supports financial security, millions of families were at risk of receiving tax refunds up to 80% lower than last year.
Income tax deferral
As part of a series of executive actions to fight the pandemic, President Trump signed a memorandum in August allowing employers to postpone the employee's share of social security tax on their paychecks for the remainder of the year. That way, workers saw higher paychecks for the remainder of 2020.
House Speaker Nancy Pelosi (D-CA) speaks during a press conference on Capitol Hill on December 20, 2020 in Washington, DC. Senate Republicans and Democrats finally agreed on the coronavirus bill, and a vote is expected on Monday. (Photo by Tasos Katopodis / Getty Images)
However, those deferred amounts had to be repaid by the end of April 2021, which meant employers would withhold more taxes on the first paychecks of the year. The economic stimulus program extends the repayment period until December 31, 2021.
"This extends the repayment period over the whole year, so that the deferred amount is paid out in smaller pieces," said York.
Under CARES, taxpayers could deduct up to $ 300 for charitable giving in 2020 and still take the standard deduction. As a rule, donations can only be deducted for charity when you declare your taxes.
The new stimulus deal expands and improves this over-the-line deduction. For 2021, individuals may withdraw up to $ 300 and joint applicants up to $ 600 in charitable donations.
Flexible spending accounts
All remaining balances in flexible spending accounts for health care or dependent care (FSAs) can be carried over from 2020 to 2021 under the new bill. In addition, unused funds at the end of 2021 can also be carried over to 2022. As a rule, these are use-it-or-lose-it means.
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3 additional tax advantages in the total bill
The other piece of total $ 2.4 trillion in legislation, the $ 1.4 trillion omnibus bill to fund the government, contained three more tax changes that could help Americans.
Deduction of medical costs: The medical costs must generally exceed 10% of the adjusted gross income in order to make this individual deduction. This threshold is now permanently at 7.5%.
Student Loans: Under CARES, employer payments on an employee's student loan - up to $ 5,250 - are not counted as the employee's taxable income. This exclusion was extended to 2025.
Education benefits: The deduction for qualified tuition and related expenses has been removed, but the income threshold for lifelong learning credit has been increased. Often times, these two tax breaks confused taxpayers because they didn't know which to take, York said. This simplifies the calculation.
Janna is an editor for Yahoo Money and Cashay. Follow her on Twitter @JannaHerron.
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