During the pandemic, economic relief administered through the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code exploded as Congress passed nearly $6 trillion of legislation into law. That left the 2021 tax filing season, which ended May 17, with complications that still linger. Tax Foundation hosted a panel last week to discuss whether the tax code is the best vehicle to administer relief and what can be done to reduce compliance and administrative burdens going forward.
According to calculations from the Committee for a Responsible Federal Budget, a little more than $1.5 trillion of the $6 trillion of COVID-19 relief was allocated through tax policy. Additional relief policies were not directly administered through the tax code but had impacts on tax liability, such as enhanced unemployment benefits and loans through the Paycheck Protection Program (PPP). Table 1 highlights some of the major coronavirus relief laws.
Last week’s panel was moderated by Tax Foundation president Scott A. Hodge and featured a discussion among me, Nina Olson (Executive Director and Founder at the Center for Taxpayer Rights), and Kathy Pickering (Chief Tax Officer at H&R Block). We discussed many themes that emerged in the 2021 filing season:
- My remarks focused on how the underlying tax code is complex and has many interactions, making it difficult to implement relief measures that are simple for taxpayers to understand and for the IRS to administer. For instance, the retroactive $10,200 exclusion of unemployment benefits affects a taxpayer’s eligibility for various credits and deductions because income has changed. That may mean certain taxpayers will need to file an amended return if they are now eligible for a provision because the exclusion changed their income.
- Nina Olson’s remarks focused on how the IRS has been put in a reactive rather than a proactive position given the constraints of the pandemic and the amount of legislation it has been tasked to implement. That experience should be used as a “proof of concept” to illustrate the resources and technologies the IRS would need to implement such programs in an efficient, proactive way. For instance, the experience with economic impact payments can serve as an example of the payment and reconciliation process for the advanced Child Tax Credit. If lawmakers continue using the IRS as an efficient payment mechanism, they should consider expanding the IRS mission statement to recognize both revenue collection and social benefits responsibilities.
- Kathy Pickering’s remarks focused on tax law changes, IRS processing issues, and the need for taxpayer service and support. For instance, taxpayer communications could be prioritized by developing communication plans about new legislation to answer taxpayer questions when new policies are developed. Other themes included difficulties of the reconciliation process on taxpayer returns, tools for taxpayers or tax preparers that could assist with the tax return review processes, and complexities for state-level tax returns.
To watch the webinar and hear the full remarks as well as the Q&A session, click here.
|Policy and highlights
|Families First Coronavirus Response Act (FFCRA) expanded federal medical leave, created an emergency paid sick leave requirement, and provided tax credits against employer-side payroll taxes to help offset added costs
|Coronavirus Aid, Relief, and Economic Security (CARES Act) provided robust support for individuals and businesses, including the first round of recovery rebates paid out as advanced refundable tax credits; an expanded charitable deduction; changes to the taxation of retirement accounts and student loans; and enhanced federal unemployment benefits including a $600 increase in weekly benefits and expansion to workers who normally wouldn’t qualify, like gig economy workers.
|Paycheck Protection Program and Health Care Enhancement Act provided additional funding for the Paycheck Protection Program (a source of small business relief) and health spending
|Approximately $400 billion
|Consolidated Appropriations Act to continue many of the programs first enacted in CARES, including another round of $600 recovery rebates and a $300 boost in federal unemployment insurance and allowing a lookback to 2019 income levels when figuring the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) for the 2020 filing season
|American Rescue Plan Act (ARPA) primarily affects next year’s tax filing season, but it did retroactively make changes to unemployment insurance and Premium Tax Credits that affected the 2021 tax filing season
Note: In August 2020, executive measures provided approximately 4 additional weeks of unemployment insurance benefits at a $300 per week level and an optional employee-side payroll tax deferral.
Source: Tax Foundation research and Committee for a Responsible Federal Budget.
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