Recovery Rebate/Economic Impact Payment
Direct to taxpayer recovery rebate. The Act provides for a refundable recovery rebate credit for 2020 that will be paid in advance to eligible individuals, often automatically, early in 2021. These payments are in addition to the direct payments/rebates provided for in earlier Federal legislation, the 2020 Coronavirus Aid, Relief, and Economic Security Act.
The amount of the rebate is $600 per eligible family member $600 per taxpayer ($1,200 for married filing jointly), plus $600 for each dependent child under age 17. Thus, a married couple with two dependent children under age 17 will receive $2,400, unless an income phase-out applies. The credit is phased out at a rate of $5 per $100 of additional income starting at $150,000 of modified adjusted gross income for married filing jointly and surviving spouses, $112,500 for head of household, and $75,000 for single taxpayers.
Treasury must make the advance payments based on the information on 2019 tax returns. Eligible taxpayers who claimed their EIPs by providing information through the non-filer portal on IRS's website will also receive these additional payments.
$250 educator expense deduction applies to PPE, other COVID-related supplies. The Act provides that eligible educators (i.e., kindergarten through grade 12 teachers, instructors, etc.) can claim the existing $250 above the line educator expense deduction for personal protective equipment (PPE), disinfectant, and other supplies used for the prevention of the spread of COVID-19 that were bought after March 12, 2020. IRS is directed to issue guidance to that effect by Feb. 28, 2021.
7.5% of AGI "floor" on medical expense deductions is made permanent. The Act makes permanent the 7.5% of adjusted gross income threshold on medical expense deductions, which was to have increased to 10% of adjusted gross income after 2020.
Mortgage insurance premium deduction is extended by one year. The Act extends through 2021 the deduction for qualifying mortgage insurance premiums, which was due to expire at the end of 2020. The deduction is subject to a phase-out based on the taxpayer's adjusted gross income.
Above the line charitable contribution deduction is extended through 2021, with increased penalty for abuse. For 2020, individuals who do not itemize deductions can take up to a $300 above the line deduction for cash contributions to "qualified charitable organizations." The Act extends this above the line deduction through 2021 and increases the deduction allowed on a joint return to $600 (it remains at $300 for other taxpayers). Taxpayers who overstate their cash contributions when claiming this deduction are subject to a 50% penalty (previously it was 20%).
Extension through 2021 of allowance of charitable contributions up to 100% of an individual's adjusted gross income. In response to the COVID pandemic, the limit on cash charitable contributions by an individual in 2020 was increased to 100% of the individual's adjusted gross income. (The usual limit is 60% of adjusted gross income.) The Act extends this rule through 2021.