United States

Individual - Significant developments

Last reviewed - 20 January 2023

President Joe Biden, who took office on 20 January 2021, proposed significant changes to United States (US) tax law as part of his budget submission to the US Congress. The Inflation Reduction Act includes a two-year extension of excess business loss limitation rules; however, it does not contain individual revenue-raising tax proposals passed by the House. Key provisions passed by the House included a new surcharge on high income individuals, estates, and trusts, expansion of the scope of Net Investment Income Tax (NIIT), changes to the treatment of carried interest, and several provisions addressing Individual Retirement Accounts (IRAs).

The CARES Act and year-end government funding bill

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act, Public Law [P.L.] 116-136), signed into law on 27 March 2020, features significant tax provisions and other measures to assist individuals impacted by the economic effects of the COVID-19 pandemic. An additional tax extenders bill was signed into law on 27 December 2020. Provisions in the CARES Act and tax extender bill impacting individuals include the following:

Charitable deduction liberalisations

The CARES Act made the following significant liberalisations to the rules governing charitable deductions:

  • Individuals generally may claim a 300 US dollars (USD) above-the-line deduction for cash contributions made to public charities in 2020 and 2021. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.
  • The limitation on charitable deductions for individuals that generally is 60% of modified adjusted gross income generally does not apply to cash contributions made to public charities in 2020 and 2021. Instead, an individual's qualifying contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 activities is required.

Break for remote-care services provided by high-deductible health plans

For plan years beginning before 31 December 2021, the CARES Act allows high-deductible health plans to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.

Break for non-prescription medical products

For amounts paid after 31 December 2019, the CARES Act allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care even if they aren't paid under a prescription. 

Net operating loss liberalisations

The 2017 tax reform legislation (P.L. 115-97) limited NOLs arising after 2017 to 80% of taxable income and eliminated the ability to carry NOLs back to prior tax years. For NOLs arising in tax years beginning before 2021, the CARES Act allows taxpayers to carryback 100% of NOLs to the prior five tax years, effectively delaying for carrybacks the 80% taxable income limitation and carryback prohibition until 2021.

The CARES Act also temporarily liberalised the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the current 80% limit). For tax years beginning after 2021, taxpayers are eligible for: (i) a 100% deduction of NOLs arising in tax years before 2018 and (ii) a deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.

Deferral of non-corporate taxpayer loss limits

The CARES Act retroactively turned off the excess active business loss limitation rule of P.L. 115-97 in Section 461(l) by deferring its effective date to tax years beginning after 31 December 2020 (rather than 31 December 2017). Under the rule, active net business losses in excess of USD 250,000 (USD 500,000 for joint filers) are disallowed by P.L. 115-97 and were treated as NOL carryforwards in the following tax year.

Medical expense itemised deduction

The medical expense deduction floor is 7.5% of adjusted gross income.

Exclusion for discharge of indebtedness on principal residence

The gross income exclusion on the discharge of indebtedness on principal residences applies through 2025.