January 18, 2022
Often, we see tax extenders slated to expire at year’s end get extended at the last moment. That has not been the case as 2021 drew to a close. There were 30 temporary provisions that expired at the end of 2021. While Congress may reinstate some of them in early 2022, possibly allowing them to be retroactive, these are some of the credits that have yet to be continued.
Child Tax Credit
The Child Tax Credit saw quite a jump in March of 2021, when the American Rescue Plan (ARP) was enacted, expanding the existing credit. At that time the credit increased to $3,000 per child for children between the ages of 6-17. In addition, there was a $600 bonus for qualifying dependents under age 6, and the credit was made fully refundable.
The ARP also detailed that the recipient would get half of their Child Tax Credits in advanced monthly payments of $250 for children 6-17 years old, and $300 for children under 6, unless the taxpayer opted out. The remaining half will be received at the time the taxpayers file their 2021 income tax return.
As this has yet to be extended, it reverts to pre-2021 rules at the beginning of 2022. This means parents can expect $2,000 per children under the age of 17 (children aged 17 no longer qualify following the pre-2021 rules). It will also go back to being received at the time the yearly income taxes are filed and is no longer fully refundable.
Earned Income Tax Credit
The Earned Income Tax Credit’s focus is on giving low to moderate income families a little extra help, with enhanced assistance for those taxpayers with children. For 2021, the income credit ranged from $1,502 to $6,728, depending on the amount of income and how many children you claim. The adjustments in the ARP made it easier for those without children to receive this benefit.
Without an extension at year-end, the amount that was increased for those taxpayers without qualifying children has now been returned to pre-2021 levels. This means that the maximum allowed credit has dropped from $1,502 back down to $540. The ARP provided expanded eligibility based on income level and age, which has also been removed.
Child and Dependent Care Credit
The ARP expanded the Child and Dependent Care Credit up to $4,000 for one qualifying child, and $8,000 for two or more children. While the Build Back Better plan does currently detail these levels remaining as part of the investment in improving the childcare system, it has not been fully passed. At present, the maximum allowable amounts have fallen to $1,050 for one child and $2,100 for two or more children in need of childcare. The eligibility thresholds also lower to pre-2021 levels.
The ability to claim an above-the-line deduction for limited charitable contributions, enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was available in 2020 and 2021. Taxpayers that took the standard deduction were allowed a deduction of $300 for single filers and $600 for joint filers. This will also be ending without any 2022 extenders.
In addition, limiting individual deductions for cash contributions to charities to 60% of their Adjusted Gross Income levels is no longer suspended. The charitable deduction limit for the corporate level has returned to 10% of the entity’s taxable income and food inventory donations have been reduced to 15%.
COVID-19 Payroll Tax Credits
Two payroll tax credits that are specific to employees and businesses that were impacted by COVID-19 have also expired. As a result of the COVID-19 Sick and Family Leave Act, employers were entitled to a payroll tax credit for allowing their employees paid leave as a direct effect of the virus. Additionally, qualified businesses were able to file for a tax credit against a portion of wages paid to their employees even when they had to shut down. Both credits currently show no signs of being reinstated in 2022.
Other Expired Credits
Some other credits that have yet to be renewed are:
· The deduction allowed for home mortgage insurance deductions.
· The credit available for energy-efficient windows/door for a private residence.
· Tax incentives for purchasing qualifying fuel-cell motor vehicles and two-wheel plug-ins.
This is just an overview of the credits and deductions that were impacted at the end of 2021. Stay tuned to our podcast, Accounting and Accountability, as well as our social media platforms and website for further information on the Build Back Better plan as it develops.