Upcoming Tax Year Reforms & What This May Mean For You
Tax reform is on the way, and it's going to impact your finances in a big way. If you're not sure what that means for you, this article will give you an overview of what changes are coming up. We'll also talk about how these changes could affect you so that you can plan accordingly.
2020 CARES Act Provision Extensions
It's quite clear that many provisions that are relevant today are ones that were supposed to be left behind in the last year. Considering the ongoing pandemic, a numerous amount of provisions have received extensions.
Millions of workers who lost their jobs as a result of COVID-19's economic effects received unemployment benefits as a result of this legislation. The CARES Act introduced two major initiatives to provide relief to affected workers, in addition to the $600 weekly payments granted to unemployed individuals.
The first, called Pandemic Unemployment Assistance (PUA). PUA, would provide a maximum of 14 weeks of additional unemployment benefits to unemployed workers who have exhausted their state benefits. The second provision is called the Pandemic Emergency Unemployment Compensation program, which is granted through standard state programs. This program was extended from 26 to 39 weeks.
Some honorable mentions in regards to some of the extended 2020 CARES Act legislations, all thanks to the Consolidated Appropriations Act, include:
Allowing employees to defer paying taxes on their employer's student loan payments until December 31, 2021.
The Family and Medical Leave Act's provision that provided businesses with subsidies to give leave has been extended until 2025.
The Consolidation Appropriations Act, 2021
The Consolidation Appropriations Act, 2021 was signed into law on September 27th, 2020. It's a budget appropriations bill for the fiscal year that started in October of 2020 and will end on September 30th 2021. It includes provisions to reduce spending by $97 billion from last year's enacted levels over two years. The most significant part is the adjustment for inflation which would allow the IRS to keep up with. Through this package, many expiring deductions and credits are extended, and several tax relief provisions granted as part of the national response to the epidemic are extended and expanded, as well as numerous catastrophe tax relief provisions, some including:
The statute allowing for $600 in tax credit advance payments per taxpayer and $1,200 for married couples filing jointly. Additionally, $600 is given to each qualified kid. Like the previous stimulus checks, the credit phases off at $75,000 in modified adjusted gross income ($112,500 for heads of household and $150,000 for married filing jointly).
An amount equivalent to any forgiven amount of a Paycheck Protection Program (PPP) loan will not be included in gross income, and expenses paid with forgiven PPP loans will be completely deductible.
The extension of the $300 deduction for cash charitable deductions if you claim the standard deduction. For 2021, the deduction is increased to $600 for joint filers.
100% of meal expenses being able to be deducted by businesses
Our incomes often rise in lockstep with the pricing of the goods and services we buy. To combat this foreseeable result, the new law adjusts tax brackets, exemptions and deductions for inflation.
To adjust for these higher income earnings, the standard deduction for most married couples filing jointly will increase to $25,100, up $300 from the previous year. The standard deduction for most single taxpayers and married individuals filing separately rises to $12,550, approximately half that of married filers. The standard deduction for most taxpayers filing as head of household will increase to $18,800.
In relation to the aforementioned income increases, in order to adjust according to inflation, higher taxes are in your foreseeable future for certain deductions and credits, and standard deductions. The new law adjusts the rate for certain income to affect those with higher incomes.
For example, the 2020 tax bracket is set at a marginal rate of 37% and will be adjusted in 2021 to 39.60%. The increase is expected to result in $40 billion more revenue from taxpayers who fall within these brackets during that time span (2020-2024).
This also applies where there are changes made to exemptions and deductions for inflation adjustments as well as planned changes affecting retirement plans. These changes will result in an estimated $170 billion worth of additional federal revenues over this period which can go towards providing services we buy such as education, healthcare or infrastructure improvements like bridges and roads.
What does this mean for me?
With all of the tax information conveniently gathered in one place and in your personal arsenal, you can be more prepared to take on the byproduct of these new tax reforms. It will assist you in completing the proper tax forms and identifying all of the credits and deductions that you are eligible for, ensuring that you receive every dollar you are entitled to! We would hate for you to be backtracked, so having all of your tax-related circumstances in good standing. There is no better time than right now to be up to date on all of taxes, whether it be back taxes or any other tax issues you may have, you do not want to fall behind with anymore tax reforms coming your way. Need help settling tax debt? Learn more about the IRS Fresh Start Program to relieve yourself of tax liabilities!
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