Expiring Tax Breaks Not Planned for Renewal

One obstacle taxpayers are facing as they get ready for this coming filing season is the potential for several tax provisions to expire before Congress can act on them. Currently, it is anybody’s guess whether some of them will in fact be allowed to expire without at least being retroactively renewed. 

The following are a few tax provisions set to expire at year’s end:

  • The Recovery Rebate Credit. Currently, there are no proposals to extend this credit. Many speculate that it will not be extended, even with the recent COVID-19 surge.
  • The paid sick and family leave credit. While this credit has been extended several times, there has not yet been a proposal to extend it currently.
  • The Enhanced Child Tax Credit. This credit expired at the end of 2021, but extensions are proposed in the Build Back Better bill. Unlike the economic stimulus payment, where if you get more than you are entitled to you can keep it, with this credit you have to repay any amount in excess of what you were entitled to.
  • The Employee Retention Credit. This was extended to the end of 2021 but then was retroactively made to expire on Sept. 30, 2021. This retroactive expiration has created problems for employers that were already reducing their payroll tax payments, assuming that the credit would be available. Looking at notice 2021-65, it told employers that if they repaid reduced payroll taxes by Dec. 31, 2021, they would 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 scheduled to expire at the end of 2021.
  • The premium tax credit under the Affordable Care Act for individuals receiving unemployment compensation. There has been no talk of extending this credit.
  • The enhanced child and dependent care credit, and the enhanced employer-provided dependent care assistance exclusion. The American Rescue Plan enhanced both for 2021 but, neither appears to be extended in the Build Back Better bill.

Several 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. 
  • The enhanced itemized charitable deduction. For itemized charitable deductions, the adjusted gross income limit was raised from 60% to 100% for 2020 and 2021. 
  • The enhanced corporate charitable deduction. The enhanced limit of 25% of taxable income is scheduled to revert to a 15% limit.

While the following list of regularly expiring provisions is shorter than in previous years, several expiring provisions were extended last year for longer periods of time, and a few were made permanent. Such as:

  • The treatment of mortgage insurance premiums as qualified residence interest.
  • The credit for health insurance costs of eligible individuals.
  • The credit for nonbusiness energy property.
  • The credit for alternative fuel cell motor vehicles.
  • The credit for newly qualified fuel vehicle refueling property.
  • The two-wheel plug-in electric drive vehicle credit.
  • Several business-focused energy credits.
  • Tax breaks related to Indian reservations.
  • The mine rescue team training credit.
  • The classification of certain racehorses as three-year property

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.