The Consolidated Appropriations Act, 2021 (the “CAA”), signed into law by President Donald Trump on December 27, 2020, provides further relief for individuals both related and unrelated to COVID-19. Such relief includes an extension of the charitable deduction allowances granted under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and new retirement plan benefits related to “qualified disasters.”
As a continued benefit from the CARES Act, the CAA allows an above-the-line deduction up to $300 for individuals who do not itemize deductions and who contribute cash to most qualified charitable organizations (not including certain supporting organizations or donor advised funds). In addition to this continued benefit, joint filers are allowed to take an above-the-line deduction up to $600 for such contributions in 2021 and in future years.
It is important to note that an overstatement of the charitable deduction attributable to this provision on your income tax return could result in the imposition of an accuracy-related penalty equal to 50% of the underpayment resulting from the overstatement.
The CAA also extended the CARES Act’s increase to the allowable charitable deduction for taxpayers who itemize deductions (discussed in our prior blog post) through 2021.
Dissimilar to the charitable deduction provisions, the CAA does not extend the CARES Act provisions related to retirement plan coronavirus-related distributions or loan benefits. The CAA does, however, provide that in service withdrawals from money purchase pension plans may be eligible to be treated as coronavirus-related distributions (discussed in our prior blog post). Such provision is retroactive to the enactment of the CARES Act, and the relevant coronavirus-related distribution provisions of the CARES Act expired on December 30, 2020.
Instead of extending the COVID-19 related relief, the CAA provides disaster-relief provisions unrelated to COVID-19, which are similar to disaster-relief provisions previously enacted. The CAA provides that the early withdrawal penalty generally imposed on individuals under the age of 59½ will not be imposed on a “qualified disaster distribution” taken within 180 days of the enactment of the CAA. Generally, a qualified disaster distribution is a distribution from certain retirement plans to an individual who lives in a qualified disaster area and has suffered economic loss due to the qualified disaster. A qualified disaster must be federally declared disaster, must meet other requirements set forth in the CAA, and does not include a disaster only by reason of COVID-19.
The total amount for the year that may be treated as a qualified disaster distribution is the excess of $100,000 over prior year’s amounts treated as qualified disaster distributions. The rules regarding repayment and the election for ratable inclusion are similar to the rules under the CARES Act for coronavirus-related distributions described in our prior blog post. The CAA also provides special rules related to recontributions of withdrawals for home purchases.
Finally, the CAA increases the amount that certain retirement plans may loan to a qualified individual (i.e. an individual who lives in a qualified disaster area and has suffered economic loss due to the qualified disaster) if the loan is made within 180 days of the enactment of the CAA. The amount of the loan may not exceed $100,000 (instead of the usual $50,000) or the present value of the individual’s vested account balance. The CAA also includes provisions related to individuals affected by more than one disaster, loan repayment, and various other special rules.
There is a myriad of tax-related provisions in the CAA. If you would like to review your particular circumstances in light of the broad-reaching CAA, we would be glad to help you determine if there are provisions which may benefit you and your family.