Notable Updates for 2021

With a tumultuous year behind us, it’s time to start focusing on the year ahead. In the world of financial management, there are several important changes to be aware of. Here’s a breakdown of some of the most important updates to understand in 2021:  

The Consolidated Appropriations Act, 2021 (CAA) 

In late December 2020, the Consolidated Appropriations Act (CAA) was signed into law; the Act combined the $1.4 trillion omnibus spending bill with the $900 billion stimulus package to address the COVID-19 pandemic. The Act (which spanned more than 5,500 pages) included a number of notable provisions:  

General Relief 

• Provided a second round of non-taxable “recovery rebates” of $600 per eligible taxpayer ($1,200 for married filing jointly) plus an additional $600 per qualifying child, subject to certain income limitations 
• Reinstated supplemental unemployment benefits (Federal Pandemic Unemployment Compensation (FPUC)) of $300 per week for up to 10 weeks between December 26, 2020 and March 14, 2021 

Employer Provisions 

• Clarified loan forgiveness and the deduction of qualified expenses under the Paycheck Protection Program (PPP) 
• Extended the CARES Act employee retention credit for qualified wages paid through June 30, 2021  
• Expanded the employment tax credit for COVID-related sick leave and family leave  

Employee Provisions 

• Extended employees’ repayment of deferred social security taxes to the period of January 1, 2021 through December 31, 2021 (versus April 30, 2021) 
• The Act allows plan sponsors to implement the following voluntary changes for employee flexible spending accounts (FSAs): 

• Expand the carryover period for unused FSA funds in 2020 and 2021 to be carried over to the next plan year  
• If the plan has a grace period, extend the grace period for unused 2020 and 2021 FSA plan year funds from 2½ months to 12 months 

Charitable Provisions from the CARES Act Extended for 2021 

• Extended the increased itemized deduction limit for cash contributions to qualified public charitable organizations up to 100 percent of the taxpayer’s adjusted gross income (cash contributions to donor-advised funds, private foundations and supporting organizations do not qualify for this increased limit) 
• Extended the CARES Act provision for the $300 above-the-line deduction for cash contributions to qualified charitable organizations (for taxpayers who do not otherwise itemize deductions); this deduction is increased to $600 for married taxpayers filing jointly 

Lower Hurdle for Deducting Medical Expenses 

The CAA permanently made the threshold for itemizing unreimbursed medical expenses to 7.5 percent of a taxpayer’s adjusted gross income (the AGI threshold was previously slated for 10 percent for 2021) 

Qualified Disaster Relief Distributions 

The CAA included temporary tax relief for withdrawals from certain retirement plans for taxpayers in federally declared disaster areas for major disasters (excluding COVID-19) declared from January 1, 2020 through February 25, 2021 

• Such distributions are limited up to $100,000 and must be made by June 25, 2021 
• Such distributions may be repaid within a three-year period after the date of distribution or may be recognized as income ratably over a period of three years 

Note: The CAA did not extend the relief provided by the CARES Act for retirement withdrawals made by taxpayers impacted by the COVID-19 pandemic. 

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