Consolidated Appropriations Act

Victor Levinson Comments

Consolidated Appropriations Act

In our March 2020 Comments, we discussed the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was passed on March 27, 2020 in response to the pandemic. We also addressed the parts of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in late 2019, that made changes to IRA rules.

We now review the changes included in the most recent stimulus bill, titled the Consolidated Appropriations Act (CAA) of 2021 and signed into law on December 27, 2020. We’ve added the CAA elements (in bold) to the presentation from March, both as a review of those important items and a way to track the current changes. As with the earlier discussion, this summary seeks to keep you informed about these efforts in general, as well as more specific programs that might have a direct impact on you, your family, and your community. It is based on our current understanding of the relevant programs, all of which are subject to revision over time. Before relying on any information provided below, please feel free to contact us to confirm whether anything has changed.


Retirement Accounts

  • CARES allows for penalty-free early withdrawals up to $100,000 from most retirement accounts (401k, Traditional and Rollover IRAs, SEP, SIMPLE). No change in CAA.
    1. Eligibility requires self-certification that individuals or their dependents have Covid-19 OR suffer from “adverse financial consequences” of the disease.
    2. Funds need to be withdrawn before the end of 2020.
    3. Can be repaid without tax consequence or penalty (typically, permanent withdrawals before age 59.5 incur taxes and penalties) within 3 years (as opposed to the current 60-day limit for IRA “loans”).
    4. If not repaid within 3 years, taxes due on withdrawals can be spread over 3 years.
  • SECURE allows for contributions to an IRA or 401K as long as you have earned income (prior rules ended contributions at age 70.5). No change in CAA.
  • SECURE raises the starting age for required minimum distributions (RMDs) from 70.5 to 72. No change in CAA.
  • SECURE requires Inherited IRAs to be withdrawn, and taxes paid for all IRAs except Roths, within 10 years for IRAs inherited after December 31, 2019 (old “stretch” withdrawal rules still apply for IRAs inherited before January 1, 2020). No change in CAA.
    1. RMDs eliminated for Inherited IRAs; withdrawals can be taken, and taxes paid, any time in the 10-year window.
    2. Exceptions apply for spouses, minor children, beneficiaries less than 10 years younger than the account owner.
    3. Rules don’t take effect until 2022 for inheritors of 403Bs (non-profit plans) and 457Bs (government plans).

RMD Changes: RMDs back in place for 2021 (except for Inherited IRAs as described above).

  • Required Minimum Distributions (RMDs) from IRAs, Inherited IRAs, and workplace retirement plans (401Ks, 403Bs) waived for 2020.

Roth Conversions: No changes in CAA, but stock market gains since March 2020 have in many cases reduced the potential appeal of Roth conversions.

  • With the significant stock market declines so far in 2020, conversions of tax-deferred retirement accounts (IRAs, including Rollovers, SEPs, and SIMPLEs) into tax-free Roth IRAs are worth considering.
    1. Conversion requires that taxes be paid on every dollar of converted amounts at ordinary income tax rates.
    2. But with lower asset values, current tax consequences will be reduced.
    3. Potential for tax advantages assuming long-term recovery in tax-free Roth IRAs.
  • New Inherited IRA rules under SECURE Act (see above) might make Roth conversions more attractive for these accounts.

Charitable Contributions

  • Cash contribution limitations raised to a maximum of 100% of 2020 adjusted gross income (from 50% currently) if you itemize deductions. Still allowed under CAA.
  • Maximum $300 deduction of contributions allowed if you don’t itemize. CAA retains $300 deduction for single filers and adds a $600 deduction for married filing jointly filers.


  • CAA provides Employee Retention Tax Credit up to $7K/employee/quarter.
  • Meal expenses in restaurants 100% deductible for 2021 and 2022.
  • Lifetime Learning credit replaces Tuition and related Expenses deduction.


Rebalancing: No changes in CAA.

  • Consider buying stocks/stock funds if your current allocation to stocks has fallen below targets.
  • Dollar cost average back into stocks over time to avoid potential large additional declines and benefit from long-term recovery.

Tax-Loss Harvesting: No changes in CAA, but stock market gains since March 2020 have in many cases eliminated tax-loss harvesting opportunities.

  • Consider sales of investments with recent declines, coupled with immediate re-purchases of comparable investments (i.e., stock funds to replace stock funds) to maintain overall asset allocation.
    1. Realized losses can be used to offset gains elsewhere in the portfolio, as well as gains from real estate sales.
    2. Losses can also be deducted against $3,000 of ordinary income each year and carried forward indefinitely.
    3. PPA makes sure to avoid “wash sale rule”, which disallows losses if the same security/fund is purchased 30 days after (or before) the sale.



  • Unemployment benefits administered by individual states. No change in CAA.
  • CARES Act provides for additional $600 per week for four months in addition to State unemployment benefits. CAA provides additional Federal benefits of $300 per week for 11 weeks.
  • Federal coverage extends State coverage by 13 weeks. Only applied to CARES Act.
  • Self-employed and part-time workers eligible in addition to full-time workers. No change in CAA.
  • Broad definition of who qualifies for coverage based on quarantines, stay-at-home orders, and required care for sick family members. No change in CAA.
  • People already on unemployment also eligible for additional benefits. No change in CAA.

Direct Payments: CAA provides $600 payments for each taxpayer and children under 17. Phaseouts mentioned below still in place.

  • Direct payments are based on 2019 tax returns, or 2018 returns if you haven’t yet filed for 2019, to determine the amount, if any, you’re eligible to receive.
  • Amounts received in 2020 and 2021 will be checked against 2020 tax returns and potentially increased if 2020 income is lower (but no funds will be re-claimed if 2020 income is higher).
  • $1,200 lump sum for each individual with 2019 adjusted gross income (AGI) less than $75,000.
  • $2,400 lump sum for each married couple filing jointly with less than $150,000 of 2019 AGI.
  • Amounts phase out for individuals up to $99,000 of AGI and couples up to $198,000 of AGI.
  • Additional $500 for each dependent child 16 or younger.
  • Social Security recipients not required to file return if they don’t typically.

Business Loans

  • Paycheck Protection Program (PPP): $349B in partially forgivable loans available to small businesses. “PPP2” provides new loans and second loans for participants in the first round of PPP loans.
    1. Small businesses defined as 500 or fewer employees, including non-profits. CAA keeps this limit for first loans but restricts second loans to businesses with 300 of fewer employees.
    2. Sole proprietors, independent contractors, and self-employed people all qualify. No change in CAA.
    3. Applications available now through lenders for small businesses and sole proprietors; 4/10/20 application start date for independent contractors and self-employed; application deadline is 6/30/20 or until program funding runs out (although additional funds might be made available in the future).
    4. Good faith certification of adverse coronavirus impact required. No change in CAA. Second loans require revenue reduction of more than 25% in any quarter of 2020 compared with any comparable quarter in 2019.
    5. No personal guarantees or collateral required; Small Business Administration (SBA) backs lenders; contact your bank or credit union to get started. No change in CAA.
    6. Loan amounts limited to 2.5 times average monthly payroll expenses from previous year; maximum of $10M. CAA restricts second loan maximums to $2M.
    7. 2-year maturity, 1.0% interest rate, interest payments deferred 6 months. No change in CAA.
    8. Loans forgivable based on eligible spending (payroll and other typical business expenses) during first 8 weeks after loan approval, assuming similar staffing and compensation levels as before CARES Act passed. CAA provides for loan forgiveness and deductibility of eligible expenses, which are expanded under the new law (now includes health spending for example). “Covered period” for expenses increased to 24 weeks. Simplified applications for forgiveness on loans of less than $150K.
    9. Salaries above $100K NOT eligible for forgiveness. No change in CAA.
    10. PPP loans could eliminate eligibility for other benefits, including payroll tax deferral, employee retention credits, and Economic Injury Disaster loans.

401K Loans

  • Loan maximums increased to lesser of $100,000 or 50% of the account balance (up from $50,000) until September 30, 2020. No change in CAA.

Real Estate/Education/Healthcare

Mortgage and Rent Relief

  • Varies by lender and State/locality; contact your lender and/or landlord for details. No change in CAA.


  • Federal student loan payments and interest automatically suspended until September 30, 2020. CAA doesn’t extend student loan deferrals, but deferrals have been extended through January 31, 2021.
  • Private loan changes vary; contact your lender for details.
  • CAA simplifies the Free Application for Federal Student Aid (FAFSA) form.
  • CAA provides for tax-free educational assistance from employers through 2025, up to $5,250 per employee per year.


  • CAA fixes the threshold for medical expense deductions at 7.5% of Adjusted Gross Income (AGI), down from 10% previously.
  • CAA allows for carryforward of unused balances in Flexible Spending Accounts (FSA), which previously had to be used during the calendar year.