These Tiny Last-Minute Tax Changes Could Be a Big Deal in 2021

That’s a lot to keep straight, so here’s a rundown of the most recent tax changes and when they apply, according to the Senate Finance Committee, plus an overview of this year’s key tax numbers. Happier New Year in 2021!

• Stimulus payments. The year-end relief and spending package just signed into law includes a second round of stimulus checks. This payment is up to $600 per taxpayer ($1,200 for married joint filers) plus $600 per qualifying child under age 17. It begins to phase out at $75,000 of adjusted gross income for most single filers and $150,000 of AGI for most married joint filers. For individuals without children, the payments go to zero when income reaches $87,000, or $174,000 for couples filing jointly. The second round of stimulus payments, like the first, isn’t taxable.

Payments are already going out, and most are based on taxpayers’ income as listed on their 2019 tax returns. If the recipients’ 2020 income turns out to be much higher, they won’t need to give the payments back. Taxpayers who earned too much in 2019 to receive checks but whose income dropped enough to qualify for the stimulus can claim payments through their 2020 tax returns.

• Unemployment pay. Among other changes in this area, the new law extends unemployment pay of $300 a week for many people from Dec. 26, 2020 to March 14, 2021, and sometimes longer. It increases the maximum number of weeks of benefits to 50 from 39 in many cases, and it allows states to forgive overpayments of benefits when repayment would “violate equity and good conscience.”

Unemployment compensation is taxable, although tax rates drop as income does. Recipients should expect to receive a Form 1099-G for 2020 payments that will be reported to the IRS.

• Charitable deductions. In its December bill, Congress extended and expanded charitable write-offs for taxpayers who take the standard deduction instead of itemizing them on Schedule A.

But the expansion applies to donations made in 2021. It allows single taxpayers to deduct up to $300 in eligible donations and married joint filers to deduct up to $600. For 2020, the limit remains $300 for both single and joint filers.

Also for 2021, this deduction reduces taxable income but not adjusted gross income. AGI is a key threshold for other tax provisions, such as Roth IRA contributions, the 3.8% surtax on investment income, and income-based Medicare premiums.

In addition, the new law extends the ability of individuals who itemize deductions on Schedule A to deduct donations up to 100% of adjusted gross income through 2021.

• Flexible spending accounts. Many workers with FSAs that allow them to use pretax dollars to pay for unreimbursed health expenses (like glasses) or dependent-care expenses (like summer camp) didn’t use all the money in their 2020 accounts because of the pandemic. The IRS had limited ability to ease FSA rules, but Congress has now done so.

Participants in such plans can carry over unused funds from 2020 to 2021 and 2021 to 2022, or for up to 12 months for companies with fiscal years. For dependent-care accounts, the law extends the age limit from 12 to 13 for some carried-over funds. For workers to take advantage of these changes, company plans must often opt into the new rules.

• Medical-expense deductions. The December law enacted a permanent threshold of 7.5% of adjusted gross income for deducting medical expenses. Without the change, the AGI threshold would have risen to 10%.

Relatively few taxpayers take this write-off because their expenses don’t exceed the threshold. But the deduction covers a wide range of unreimbursed costs when it does apply, and it’s valuable to people who have very large medical expenses, such as from nursing-home care. For a list of allowed expenses, see IRS Publication 502.

• Business-meal deductions. Acting on a request from President Trump, Congress has enacted a 100% deduction for business-meal and beverage expenses in 2021 and 2022, up from 50% in 2020. It applies to delivery and carryout meals as well as those in restaurants.

• Retirement-plan withdrawals. The new law has a permanent provision allowing victims of officially declared disasters such as hurricanes and fires to make withdrawals up to $100,000 of IRA and 401(k) assets. These withdrawals can then be included in taxable income or restored to the account over as long as three years. For people younger than 59 1/2 who take such payouts, the 10% penalty on early withdrawals doesn’t apply.

This relief is similar to what Congress allowed for people affected by Covid-19 in 2020. So far, however, lawmakers haven’t extended this relief for Covid victims into 2021.

Key Inflation-Adjusted Tax Numbers for 2021

Up to $9,950

$9,951 to $40,525

$40,526 to $86,375

$86,376 to $164,925

$164,926 to $209,425

$209,426 to $523,600

$523,601 +

Up to $19,900

$19,901 to $81,050

$81,051 to $172,750

$172,751 to $329,850

$329,851 to $418,850

$418,851 to $628,300

$628,301 +

Capital gains

and dividends

Up to $40,400

$40,401 to $445,850

$445,851 +

Up to $80,800

$80,801 to $501,600

$501,601 +

Social Security-tax wage cap

$11.7 million per individual

Annual gift tax exclusion

Retirement-plan contribution limits†

Traditional or Roth IRA

401(K) or Roth 401(k)

SEP IRA or Solo 401(k)

Up to $6,000 (plus $1,000 for age 50 and older)

Up to $19,500 (plus $6,500 for age 50 and older)

Up to $58,000 (plus $6,500 for age 50 and older, for solo 401(k))

Up to $9,950

$9,951 to $40,525

$40,526 to $86,375

$86,376 to $164,925

$164,926 to $209,425

$209,426 to $523,600

$523,601 +

Up to $19,900

$19,901 to $81,050

$81,051 to $172,750

$172,751 to $329,850

$329,851 to $418,850

$418,851 to $628,300

$628,301 +

Capital gains

and dividends

Up to $40,400

$40,401 to $445,850

$445,851 +

Up to $80,800

$80,801 to $501,600

$501,601 +

Social Security-tax

wage cap

$11.7 million per individual

Annual gift tax exclusion

Retirement-plan contribution limits†

Traditional or Roth IRA

401(K) or Roth 401(k)

SEP IRA or Solo 401(k)

Up to $6,000

Up to $19,500

Up to $58,000

(plus $1,000 for age 50 and older)

(plus $6,500 for age 50 and older)

(plus $6,500 for age 50 and older,

for solo 401(k))

Up to $9,950

$9,951 to $40,525

$40,526 to $86,375

$86,376 to $164,925

$164,926 to $209,425

$209,426 to $523,600

$523,601 +

Up to $19,900

$19,901 to $81,050

$81,051 to $172,750

$172,751 to $329,850

$329,851 to $418,850

$418,851 to $628,300

$628,301 +

Capital gains

and dividends

Up to $40,400

$40,401 to $445,850

$445,851 +

Up to $80,800

$80,801 to $501,600

$501,601 +

Social Security-tax

wage cap

$11.7 million per individual

Annual gift tax exclusion

Retirement-plan contribution limits†

Traditional or Roth IRA

401(K) or Roth 401(k)

SEP IRA or Solo 401(k)

Up to $6,000

Up to $19,500

Up to $58,000

(plus $1,000 for age 50 and older)

(plus $6,500 for age 50 and older)

(plus $6,500 for age 50 and older,

for solo 401(k))

Up to $9,950

$9,951 to $40,525

$40,526 to $86,375

$86,376 to $164,925

$164,926 to $209,425

$209,426 to $523,600

$523,601 +

Up to $19,900

$19,901 to $81,050

$81,051 to $172,750

$172,751 to $329,850

$329,851 to $418,850

$418,851 to $628,300

$628,301 +

Capital gains and dividends

Up to $40,400

$40,401 to $445,850

$445,851 +

Up to $80,800

$80,801 to $501,600

$501,601 +

Social Security-

tax wage cap

Annual gift tax

exclusion

Retirement-plan contribution limits†

Traditional or Roth IRA

Up to $6,000

(plus $1,000 for age 50 and older)

401(K) or Roth 401(k)

Up to $19,500

(plus $6,500 for age 50 and older)

SEP IRA or Solo 401(k)

Up to $58,000

(plus $6,500 for age 50 and older,

for solo 401(k))

Write to Laura Saunders at laura.saunders@wsj.com