Recently, President Trump signed into law the latest stimulus bill called the Consolidated Appropriations Act of 2021. This law is a follow up to the CARES Act earlier last year.

Why was the bill necessary? Because plenty of families and small businesses are still hurting, with unemployment high and plenty of businesses considering closing their doors for good.

While there are great benefits in the new stimulus package for small businesses, I’ll focus on some key takeaways for families, aside from the $600 stimulus checks already received by millions of Americans.

Federal Unemployment Benefits Extended

The stimulus authorized additional unemployment benefits. These provide an extra $300 per week for up to 11 weeks for those eligible. This benefit is in addition to any state benefits already being received. A nice bonus.

The weekly $300 unemployment checks are less than the $600 checks from the CARES Act days, but that was arguably creating a big moral hazard, incentivizing many to not work at all (rather than work and earn less than their unemployment check).

Lower AGI Hurdle for Medical Expense Deduction

For medical expenses, the AGI hurdle to receive a deduction for these expenses was permanently reduced to 7.5% from 10%.

This doesn’t help you much if you typically don’t itemize your tax deductions, but if you do or if you have a year where you have some hefty medical bills, this can boost your deductions, potentially lowering your taxes.

A Nice (Little) Charitable Deduction

The new law authorizes a special charitable deduction for individuals and families. Like medical expenses, there typically isn’t a deduction for charitable giving unless your itemized deductions exceed the standard deduction. However, this special charitable deduction allows you to give to your favorite charity and reduce your taxable income.

How big is the deduction? It’s not much. $300 for single filers, and $600 for married filers. Oh well. Consider it a quick way to donate a little to your favorite cause and lower your taxes too.

Updates to the Lifetime Learning Credit

If you or your dependent kids are pursuing higher education, there are some appealing changes to Lifetime Learning Credit (LLC) eligibility. This provides a 20% tax credit on your first $10,000 (so up to $2,000) of eligible education expenses for any number of years. A similar credit called the American Opportunity Tax Credit (AOTC), is an annual credit of $2,500 per year for the first four years of higher education.

Previously, the LLC credit had lower income phaseout limits, meaning if you earned too much income you weren’t eligible for it. This made pursuing the AOTC more beneficial for most. The recent law changes the income phaseout limits, so they’re now equal to those of the AOTC, making the LLC available to more families who otherwise didn’t qualify.

Roll FSA Funds Into Future Years

Flex Spending Accounts (or FSAs) are funded from employer or employee tax deductible contributions, which can be used for qualified medical expenses. Typically these funds need to be used before the end of the year, or they’re lost.

For 2021 and 2022 only, the new law authorizes FSA unused funds to be “rolled” into these years rather than lost--a great benefit to those who may end up being healthier in 2021 than expected.

There you have it! Another round of stimulus funds in the books. Let’s hope there’s little to no need for round 3 (I won’t hold my breath).

Do you want to work with someone who specializes in helping families reduce their income taxes, optimize their retirement income, and invest smarter? Schedule a free consultation.

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