Tax provisions of the Senate-approved $1.9 trillion stimulus bill include an unemployment insurance (UI) exemption for 2020. The retroactive change in law, which would come after approximately 45 million returns have already been filed this year, is amplifying calls amongst tax practitioners and lawmakers alike for postponing the 2021 tax filing season deadline.
American Rescue Plan Act
Democrats’ American Rescue Plan Act (H.R. 1319) cleared the Senate on March 6 along party lines by a 50-to-49 vote. Senate Democrats used a procedure known as budget reconciliation, which allows for a simple majority approval, rather than meeting the 60-vote threshold required under regular order. At this time, the House is expected to approve the amended measure as early as Tuesday, March 9.
As of Monday, March 8, final text of the Senate-approved measure had not yet been released. Additional analysis will be sent to members once legislative text is finalized and an enrolled bill is available.
Unemployment Insurance
Notably, the Senate-approved measure includes an amendment providing for an exemption of tax on the first $10,200 received in UI benefits by an individual whose adjusted gross income is less than $150,000 a year. Additionally, the bill would provide an extension of weekly supplemental unemployment benefits of $300 through September 6. Currently, those benefits are scheduled to expire on March 14.
However, the UI-related tax relief, if enacted, will arrive accompanied by increased challenges for practitioners during this already uncertain and shortened 2021 tax filing season. Tax practitioners are reporting an inordinate amount of stress this filing season. And if the retroactive UI changes become law, ultimately many applicable tax returns that have already been completed or filed will have to either be corrected or amended.
Bright side (too soon?): electronic filing of Form 1040-X for amended returns is available.
Stimulus – Recovery Rebate
Additionally, under the mammoth Senate-approved bill eligible individuals will be allowed as a credit against the tax imposed for the first taxable year beginning in 2021 an amount equal to the 2021 rebate amount determined for such taxable year:
(1) $1,400 ($2,800 in the case of a joint return), plus
(2) $1,400 multiplied by the number of dependents of the taxpayer for such taxable year.
The Senate bill would also lower the annual income threshold for phaseouts related to the $1,400 rebate checks from $100,000 to $80,000 for single filers and from $200,000 to $160,000 for married filing jointly.
Child Tax Credit
Further, the enhanced Child Tax Credit would provide up to $3,600 for children under age six. It would also provide up to $3,000 for children above that age, including 17-year-olds. Notably, the $2,500 earned income threshold is erased and the credit becomes completely refundable for 2021. Income eligibility rules mirror those thresholds for stimulus checks.
2021 Tax Filing Season
Meanwhile, House Ways and Means Committee Chairman Richard E. Neal, D-Mass., and Oversight Subcommittee Chair Bill Pascrell, D-N.J., have urged the IRS to postpone the 2021 tax filing season deadline. “We stand in the midst of the most important tax filing season in recent memory, and taxpayers cannot get the help they need from the IRS,” Neal and Pascrell said in a March 8 joint statement. “Returns received by the IRS have fallen significantly behind last year’s numbers. On top of all that, once it is signed into law, the American Rescue Plan will change the tax laws applicable to unemployment benefits received in 2020 and reported on returns filed during this filing season. Taxpayers need more time to file accurate returns and get their questions answered by the IRS.”
NSA Support
After numerous listening sessions and mounting challenges, NSA supports many of its members’ calls for postponing this year’s filing season deadlines. NSA recommends that all payments and returns due March 1 through June 15 have an extended due date of June 15, 2021.
Last month, NSA sent a letter to the IRS outlining various challenges faced by tax practitioners while also seeking clarity regarding the IRS’s preparedness for this year’s filing season and whether the agency was considering an extended filing and payment deadline.
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