The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriations Act (CAA) introduced significant tax extenders and new tax rules for taxpayers navigating economic recovery.
From Recovery Rebate Credits to student loan contribution tax-free extensions, here is a detailed breakdown of 10 key ways tax season evolved.
1. Recovery Rebate Credit to Claim Missed Stimulus Payments
If you missed getting your first or second round of Economic Impact Payments (stimulus checks), you can claim the Recovery Rebate Credit while filing your federal income tax return.
Stimulus Payment Rounds Breakdown
- First Round ($1,200): $1,200 per eligible adult plus $500 per qualifying child based on 2018 or 2019 tax returns.
- Second Round ($600): $600 per eligible individual including children based on 2019 tax returns.
Important Tax Status Note:
Stimulus payments received in full are not considered taxable income by the IRS and do not need to be added to gross income.
2. Earned Income Tax Credit (EITC) Flexibility
The Earned Income Tax Credit (EITC) provides substantial relief for low-to-moderate income workers. Taxpayers were granted the option to calculate their credit using either 2019 or 2020 earned income—whichever yielded the higher credit amount.
EITC Qualification Criteria
- Must have taxable earned income from employment or self-employment.
- Investment income must be below the annual limit ($3,650 for 2020).
- Credit values range from $538 up to $6,660 depending on qualifying children and AGI.
3. Tax-Free Employer Student Loan Contributions
Under the extended CARES Act provision, employers can contribute up to $5,250 annually toward an employee's student loan repayments on a tax-free basis through December 31, 2025.
These payments are excluded from employee gross income, enabling faster student debt reduction without increasing tax liability.
4. Remote Work & Home Office Tax Rules
Despite millions working remotely, standard W-2 employees cannot claim home office deductions under current federal tax code.
Who Qualifies for Home Office Deductions?
- Self-Employed & 1099 Contractors: Can deduct a portion of rent, utilities, internet, and office supplies used exclusively and regularly for business.
- W-2 Employees: Generally ineligible for federal home office deductions under the Tax Cuts and Jobs Act.
5. Mortgage Debt Forgiveness Tax Exclusion
Normally, forgiven debt is considered taxable income (Form 1099-C). However, the tax exclusion for forgiven qualified principal residence mortgage debt was extended through 2025.
Exclusion Maximum Limits:
Up to $750,000 for married couples filing jointly ($375,000 for single filers) in forgiven principal residence mortgage debt resulting from short sales, foreclosures, or loan modifications.
6. Private Mortgage Insurance (PMI) Deduction
Homeowners who itemize deductions on Schedule A can deduct private mortgage insurance (PMI) premiums paid on loans originated after 2006.
The deduction begins phasing out for taxpayers with AGI over $100,000 ($50,000 for married filing separately).
7. Flexible Spending Account (FSA) Rollover Rules
The traditional "use-it-or-lose-it" FSA rule was relaxed, allowing employers to permit employees to carry over 100% of unused healthcare or dependent care FSA funds into the subsequent plan year.
8. Permanent 7.5% Medical Expense Deduction Threshold
Taxpayers who itemize can deduct out-of-pocket medical and dental expenses exceeding 7.5% of Adjusted Gross Income (AGI). This lower threshold was made permanent starting with the 2021 tax year.
9. Above-the-Line Charitable Cash Deductions
Taxpayers claiming the standard deduction can take an above-the-line deduction of up to $300 for single filers ($600 for married filing jointly) for direct cash donations made to qualified 501(c)(3) public charities.
10. Taxation of Unemployment Benefits
State and federal unemployment benefits (including FPUC, PEUC, and PUA) are considered taxable income by the IRS and must be reported using Form 1099-G.
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Loretta Kilday
Debt Relief Specialist & Spokesperson, DebtCC
Loretta Kilday, Esq., is an accomplished litigator and transactional attorney with more than 30 years of experience across debt collection, bankruptcy, and related matters. DebtConsolidationCare features her as its spokesperson and public voice. She earned her J.D. from DePaul University College of Law and a B.S. in Finance from DePaul University.