Taxpayers Face Difficulties With Expiring Tax Breaks and CTC

Tax professionals and their clients are dealing with extra challenges this season from tax breaks that ended last year and have not yet been extended. While some provisions were related to pandemic relief and arguably intended to expire at some point, others are on the traditional list of “tax extenders” that get renewed by Congress, sometimes retroactively. Around forty tax provisions affecting individuals or businesses expired in 2021, six of which ended after the third quarter and thirty-four at the end of the year.

The Biden administration’s Build Back Better Act aimed to extend the beefed-up Child Tax Credit that was included in the American Rescue Plan last year. It provided monthly advance payments of $250 to $300 per child, depending on their age, while increasing the total amount per year from $2,000 to up to $3,000 or $3,600 per child, again depending on their age. But after the Build Back Better Act stalled in the Senate, the limit went back to $2,000 and the monthly payments went away. Phaseouts have been another complicating factor for the Child Tax Credit. With one phaseout dealing with the pre-2021 Child Tax Credit of $2,000 for kids and another dealing with the Additional Child Tax Credit.

Many parents are disappointed when they discover they may need to repay some of the advance payments of the Child Tax Credit, or their tax refund is smaller. Advisers have to explain to clients that the money was intended to aid them and the economy during the pandemic. Other parents have been distressed about the abrupt end of the monthly advance payments. A new study found that child poverty spiked by 41% in January, right after the expanded Child Tax Credit expired, leaving 3.7 million more children in poverty without the monthly CTC. The enhanced Child Tax Credit is probably the highest profile tax break that either ended last year or went back to its pre-pandemic size.

Congress may decide to extend some of the expiring provisions, perhaps even retroactively as it has in the past. However, with the midterm elections approaching in the fall, it may be difficult for Congress to agree until after the election on what to do with them, perhaps in a year-end package.

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.