Additional 2021 Federal Tax Law Changes for Individuals
The 2021 Consolidated Appropriations legislation that was passed last December and the American Rescue Plan included the following changes to federal tax provisions and extended expiring provisions so that they are still applicable for 2021.
Federal Tax Law Changes for 2021
The following provisions that were included in the 2021 Consolidated Appropriations legislation are new for Tax Year 2021:
- The Non-itemizer charitable contribution limit was changed to allow up to $600 for Married filing joint returns.
- Businesses may deduct 100% of business meal expenses for 2021 and 2022.
- The Tuition and Fees Deduction (which was an adjustment to income on Form 1040) has been eliminated. Therefore, Form 8917 is no longer applicable.
- The Lifetime Learning credit will now begin to phase-out when the taxpayer’s modified adjusted gross income reaches $80,000 ($160,000 for married filing joint filers).
- The medical deduction floor has been set permanently at 7.5% of AGI on Schedule A.
The Non-itemizer charitable contribution limit now allows up to $600 for Married Filing Joint Returns.
Federal Tax Provisions Still Applicable for 2021
The 2021 Consolidated Appropriations legislation included provisions that extended the following federal provisions making them still applicable for 2021.
- The Non-itemizer charitable cash contribution deduction was made permanent.
- Taxpayers whose home was foreclosed on will still be able to exclude any gain that was created from any mortgage debt forgiven on that home from income on Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness).
- Taxpayers may treat mortgage insurance premiums as qualified mortgage interest on Schedule A.
Self-Employed Credit for Sick and Family Leave Changes for 2021
The American Rescue Plan made the following changes to this credit that is reported on Form 7202 (Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals) that are applicable to 2021.
- Extended the credit through September 30, 2021
- The 10-day maximum for sick leave is reset starting April 1, 2021. The original 10-day limit applied April 1, 2020 – March 31, 2021. This means that a taxpayer could have a sick leave credit from January 1 – March 31, 2021 and an additional credit for the period April 1 – September 30, 2021 if the self-employed taxpayer was unable to perform services for up to 10 days in both periods of time.
- Family leave credit may be claimed for up to 60 days at $200 per day for a maximum credit of $12,000.
For more details on the Credit for Sick Leave and Family Leave for Certain Self-Employed Individuals), see the following on the IRS website:
- Tax Credits for Paid Leave Under the American Rescue Plan Act of 2021: Specific Provisions Related to Self-Employed Individuals
- Tax Credits for Paid Leave Under the Families First Coronavirus Response Act for Leave Prior to April 1, 2021
- COVID-19 Related Tax Credits for Paid Leave Provided by Small and Midsize Business FAQs
- New IRS Form Available for self-employed individuals to claim COVID-19 Sick and Family Leave tax credits under FFCRA