New Tax Rules & Highlights

Increase in Age for Required Beginning Date for RMDs 

  • Under prior law, participants were generally required to begin taking
    required minimum distributions (RMDs) from their qualified retirement plans by April 1 of the calendar year following the later of:
    The calendar year in which the employee attains age 70’12, or the calendar year in which the employee retires.
  • For IRAs, including SEP and SIMPLE IRAs, the first RMD must have been taken by April 1 of the year following the calendar year in which the taxpayer reaches age 70’12.
  • RMD age. Effective for 2021, the age for the required beginning date for mandatory distributions is age 72 for taxpayers reaching age 70’12 after December 31,2019.  A similar rule applies to the required beginning date for receiving distributions from an IRA. The age 70’12 rule has changed to age 72. A similar rule also applies to spousal beneficiaries and the special rules for more than 5% owners.

COVID-19 Distribution

      A COVID-19 distribution is a distribution made from an eligible retirement plan [401(k) plan, 403(b) plan, governmental 457(b) plan, money purchase plan, or IRA] to a qualified individual (impacted by COVID-19) during the 2020
calendar year, up to an aggregate limit of $100,000 from all plans and IRAs. The 10% early-withdrawal penalty does not apply for COVID-19 distributions.
Itemized deduction for mortgage insurance premiums.  Mortgage insurance premiums itemized deduction that had expired at the end of 2020 has been extended through the end of 2025. 

  • Premiums paid for acquisition indebtedness for insurance contracts on a first or second home are treated as deductible mortgage interest on Schedule A (Form 1040), Itemized Deductions, subject to the following phaseout rules.
  • Decrease of 10% for each $1,000 (or portion thereof) by which the taxpayer’s AGI exceeds $100,000 ($500 and $50,000 for MFS). No deduction when AGI exceeds $109,000 ($54,500 for MFS).

Qualified Principal Residence Debt

          Cancellation of qualified principal residence indebtedness exclusion from gross income that had expired at the end of 2020 has been extended through the end of 2025. Taxpayers may exclude income from cancellation of qualified principal residence debt.

Nondeductible Alimony

      Alimony and separate maintenance payments are not deductible by the
payer and are not included in income by the recipient spouse for any divorce or separate maintenance instrument executed after December 31, 2018.

Form 1099-NEC, Nonemployee Compensation

          If a taxpayer receives Form 1099-NEC with an amount in box 1, the payer is treating the taxpayer as a self-employed worker, also referred to as an independent contractor. Assuming the worker is correctly classified and the amount on Form 1099-NEC is correct, the taxpayer reports these payments for services, along with any other business income, on Schedule C (Form 1040). Net profit from self-employment is subject to self-employment tax.

Meals

          While entertainment expenses are generally nondeductible, a taxpayer
may continue to deduct 50% of the cost of business meals if the taxpayer (or an employee) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business
customer, client, consultant, or similar business contact.  Food and beverages that are provided during entertainment events are not considered entertainment if purchased separately from the entertainment, or if the
cost of the food and beverages is stated separately from the cost of the
entertainment on one or more bills, invoices, or receipts. However, the
entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

          For 2021 limit is 100% for certain meals. For calendar years 2021 and
2022, the business meal deduction limit is increased to 100% for amounts paid for food or beverages provided by a restaurant.  Food and beverages purchased at a venue other than a restaurant are still subject to the 50% limitation rule.

Child Tax Credit

          Generally, in recent years, the Child Tax Credit has been $2,000 per qualifying child, of which $1,400 was refundable as the Additional Child Tax Credit. 

          Effective for the 2021 tax year only:

  • The Child Tax Credit is increased to $3,000 per qualifying child,
  • The Child Tax Credit is increased to $3,600 in the case of a qualifying child who has not yet attained the age of 6 as of the close of the calendar year.
  • The age limitation for a qualifying child is increased from age 16 to age 17 (a child who has not yet attained age 18 as of the close of the calendar year).

          The full amount of the Child Tax Credit is a refundable credit. This means if the credit is more than the tax due the difference is refunded to you.

Student Loan Debt Forgiveness

          Gross income generally includes the discharge of indebtedness of the
taxpayer. However, in certain circumstances, a taxpayer may be able to exclude amounts from gross income as a result of:

  • Student loan cancellation due to meeting certain work requirements,
  • Student loan cancellation due to death or permanent and total disability, or Student loan repayment assistance.

          Tax years 2021 through 2025. Under the American Rescue Plan Act of 2021, gross income does not include any amount of student loan cancellation which otherwise would be includible in taxable income by reason of debt forgiveness under certain circumstances.

Taxpayer Unable to Pay

          The following payment alternatives are available to taxpayers who are unable to pay the entire balance due with the return.

Installment agreement: A taxpayer can request an installment agreement online at www.irs.gov, or by completing and mailing to the IRS Form 9465,

Installment Agreement Request. Set-up fees may be higher if application is not made online through www.irs.gov.  Online application. The taxpayer’s specific situation will determine which payment options are available:

  • Long-term payment plan (paying entire balance in more than 120 days).
    Taxpayer must owe $50,000 or less in combined tax, penalties, and interest, and have filed all required returns
  • Short-term payment plan (paying entire balance in 120 days or less).
    Taxpayer must owe less than $100,000 in combined tax, penalties, and
    interest.
  • Applicable fees may be lower for taxpayers paying with automatic electronic payments.
  • Six-month hardship extension of time to pay. If paying the tax would cause undue hardship, a request for an extension up to six months is made by filing Form 1127 Application for Extension of Time for Payment of Tax Due to Undue Hardship. The taxpayer must show that a substantial financial loss will occur (such as selling property at a sacrifice price) if the tax is paid on the due date