LOOKING AHEAD TO THE NEXT ROUND OF FEDERAL TAX LEGISLATION
CONSIDERATIONS FOR ALABAMA BUSINESSES AND INDIVIDUALS KAREN R. MILLER, CULVERHOUSE SCHOOL OF ACCOUNTANCY, UNIVERSITY OF ALABAMA Now that Alabama CPAs have received the critical guidance related to Alabama’s conformity with the federal relief provisions contained in the CARES Act and the Consolidated Appropriations Act, we turn our attention to the next two rounds of federal legislation which could potentially be proposed and/or enacted in 2021. In contrast to the situation that we faced in 2017 after the last change in the presidency, certain Alabama taxpayers could see a potentially significant increase in their federal tax liability, while others could see additional tax benefits resulting from enhanced credits and other provisions designed to assist American families who continue to face hardships as a result of the pandemic. For the state, the impact of Alabama’s inverted relationship with the federal income tax, which is attributable to Alabama’s allowance of a federal income tax
deduction, will create significant challenges for legislators as they face potential declines in both corporate and individual tax revenue.
What to Watch in the First Round of Legislation – American Rescue Plan Considerations Impact for Individuals Soon after his inauguration, President Biden announced the details of the first component of his economic recovery plan, which is titled the “American Rescue Plan.” While the inclusion of an additional round of federal stimulus payments has received most of the media attention for the past four weeks, there are several additional individual tax provisions which could result in lower federal tax liabilities for a large percentage of American taxpayers, including:
• Increased child tax credits, with the possibility of a monthly payment option; • Increased dependent care tax credits; and • Increased earned income tax credits. At the time this article was published, Congressional leaders were continuing to negotiate the eligibility criteria for the increased credits, and uncertainty still exists regarding the adjusted gross income (“AGI”) levels which will be used to determine eligibility. As a result, the number of potential Alabama households which could benefit from a lower federal income tax liability in 2021 is still uncertain, but the early indications from the Congressional negotiations point to a fairly high number.
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