The potential for a number of tax provisions to expire before Congress can act on them is one more obstacle facing tax preparers as they gear up for the filing season ahead. It’s anybody’s guess whether certain of these provisions, currently scheduled to expire at the end of 2021, will in fact be allowed to expire without at least being retroactively renewed.
“Congress continues to permit a long list of regularly expiring provisions to be extended for only a year or two at a time, sometimes retroactively,” observed Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting. “Despite the uncertainty, it is important for preparers and taxpayers to be aware of expiring provisions so they can take advantage of opportunities,” he said.
The following is a roundup of some of the tax provisions that are set to expire at year’s end.
There are a host of COVID-related tax provisions:
- The Recovery Rebate Credit. Currently, there are no proposals to extend this, according to Luscombe: “The only reason to extend this would be due to a deteriorating COVID situation. It probably won’t be extended, even with the recent surge. The confusing issue for next year’s filing season is that taxpayers received two payments this year. The first one related to tax year 2020, but only the payment that came later in the year affects 2021 returns. And as was the case last year, if taxpayers received more than they were entitled to, they don’t have to repay it.”
- The paid sick and family leave credit. This has been extended a couple of times, Luscombe noted. “It expired on Sept. 30, 2021. There hasn’t yet been a proposal yet to extend it, but it could be renewed in late legislation.”
- The enhanced Child Tax Credit. This expires at the end of 2021, but extensions are proposed in the Build Back Better bill, according to Luscombe. “Unlike the economic stimulus payment, where if you get more than you’re entitled to you can keep it, with this credit you have to repay any amount in excess of what you were entitled to,” he said.
- The Employee Retention Credit. This was extended to the end of 2021, but then was retroactively made to expire on Sept. 30, 2021. “The retroactive expiration has created some problems for employers that were already reducing their payroll tax payments assuming that the credit would be available,” said Luscombe. “Notice 2021-65 basically tells employers that if they repay reduced payroll taxes by Dec. 31, 2021, they will not be assessed a penalty, and cannot continue to reduce their payroll taxes for the quarter after Dec. 20, 2021.”
- The enhanced Earned Income Tax Credit for childless individuals. This was enacted in March 2021 as part of the American Rescue Plan and is scheduled to expire at the end of 2021. “This provision is in the current version of the Build Back Better bill and will likely be extended if the bill is passed,” said Luscombe.
- The premium tax credit under the Affordable Care Act for individuals receiving unemployment compensation. There’s been no talk of extending this, Luscombe indicated.
- The enhanced child and dependent care credit, and the enhanced employer-provided dependent care assistance exclusion. The American Rescue Plan enhanced both of these for 2021, Luscombe observed: “However, surprisingly, neither appears to be extended in the Build Back Better bill.”
Some provisions are specific to charitable contribution deductions:
- The charitable deduction for non-itemizers. Taxpayers claiming the standard deduction may claim a deduction for 2021 of up to $300, or $600 for married filing jointly. “I haven’t seen proposals to extend this, although the long-term goal was to promote more deductions for charities,” said Luscombe.
- The enhanced itemized charitable deduction. For itemized charitable deductions, the adjusted gross income limit was raised from 60% to 100% for 2020 and 2021. “I don’t expect a lot of effort to extend this,” Luscombe commented. “It would affect a lot of wealthier people, so they should take advantage of the 100% limit before it goes away.”
- The enhanced corporate charitable deduction. The enhanced limit of 25% of taxable income is scheduled to revert back to a 15% limit.
The following list of regularly expiring provisions is shorter than in previous years because a number of expiring provisions were extended last year for longer periods of time, and a few were made permanent, Luscombe observed:
- The treatment of mortgage insurance premiums as qualified residence interest;
- The credit for health insurance costs of eligible individuals;
- The credit for non-business energy property;
- The credit for alternative fuel cell motor vehicles;
- The credit for new qualified fuel vehicle refueling property;
- The two-wheel plug-in electric drive vehicle credit;
- Several business-focused energy credits;
- There tax breaks related to Indian reservations;
- The mine rescue team training credit; and,
- The classification of certain race horses as three-year property.
“If we get any legislation that deals with expiring provisions, most of these will be included,” suggested Luscombe. “They’re not in the Build Back Better bill, but they may be retroactively renewed. If past is prologue, they will eventually be extended but there is currently no certainty.”