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. extenders are no stranger to hitching a last-minute ride on year-end legislation. This year they made another last-minute appearance, finding a hold in their own division of the 5,593-page bill to fund the government through the fiscal year and provide additional coronavirus relief through March.
If you’ve followed the extenders debate, you know that 33 temporary tax provisions were scheduled to expire at the end of 2020 and several more over the next several years. The only extender allowed to lapse of the 33 scheduled to expire at year end is the special rule for sales or dispositions by a qualified electric utility to implement Federal Energy Regulatory Commission (“FERC”) or state electric restructuring policy (sec. 451(k)(3)). Lawmakers chose to make a handful of extenders permanent, offer five-year extensions for some, and one-year extensions for the rest. The Joint Committee on Taxation estimates the extensions will reduce federal revenue by almost $104 billion over the 2021-2030 budget window.
The lower excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. rates for beer, wine, and distilled spirits passed under the Tax Cuts and Jobs Act (TCJA)The Tax Cuts and Jobs Act in 2017 overhauled the federal tax code by reforming individual and business taxes. It was pro-growth reform, significantly lowering marginal tax rates and cost of capital. We estimated it reduced federal revenue by .47 trillion over 10 years before accounting for economic growth. of 2017, and related rules, will become permanent. The TCJA’s reduction of the medical expense deduction floor from 10 percent to 7.5 percent of adjusted gross income will also be permanent. Other provisions now permanent include the benefits to volunteer firefighters and emergency medical responders, the energy-efficient commercial buildings deduction, the railroad track maintenance credit, and a change to education-related extenders which eliminates the deduction for qualified tuition and related expenses in favor of an increase in the income limitation on the lifetime learning credit.
Another 11 provisions will receive a five-year extension, aligning their new expiration date with the expiration date of the TCJA’s individual provisions. They include:
- The look-through rule for controlled foreign corporations
- New Markets Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.
- Work Opportunity Tax Credit
- Exclusion from gross income of mortgage forgiveness
- Empowerment zone tax incentives
- Oil spill liability trust fund rate
- Employer credit for paid family and medical leave
- Exclusion for certain employer payments of student loans (a CARES Act provision)
- Extension of carbon oxide sequestration credit
- 7-year recovery period for motorsports entertainment complexes
- Expensing rules for certain productions
Shorter extensions are provided for another 19 provisions, including several related to green energy, shorter asset lives for specific types of investments, and the health insurance tax credit.
It is encouraging to see lawmakers provide permanent solutions for at least some tax extenders. Rather than slowly whittle away temporary tax provisions from the tax code, a permanent solution (whether inclusion in the tax code or expiration) would provide more certainty for taxpayers going forward. Rather than waiting until the very last minute to decide, lawmakers should tackle the remaining extenders well ahead of their expiration dates.
Note: You can explore all of our analysis on the latest coronavirus relief legislation at the federal, state, and international levels with our dedicated COVID-19 Tax Resource Center.
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