A bevy of significant federal tax breaks will expire Dec. 31, 2021. The expiring provisions for 2021 are more significant than those in previous years, as many were intended to provide temporary COVID-19 relief.
While Congress may act to retroactively extend some of these breaks, it is important for taxpayers to be mindful of their expiration.
Below is a recap of some of the federal tax provisions scheduled to expire starting in 2022.
The American Rescue Plan increased the child tax credit for 2021 from $2,000 to $3,000 per child for children above age six, and from $2,000 to $3,600 for children under age six. It also raised the age limit from 16 to 17.
While an extension is proposed in the Build Back Better Act, the plan’s fate is uncertain.
A part of 2020’s CARES Act, the Recovery Rebate Credit makes it possible for eligible individuals who didn’t receive a stimulus payment, also known as an economic impact payment, to claim the missing amount on the following tax return.
There are no proposals to extend this credit. Experts say the only reason to extend it would be a deteriorating COVID-19 situation.
The enhanced earned income tax credit for childless individuals
In March 2021, the American Rescue Plan temporarily tripled the earned income tax credit for childless adults, meaning those who don’t claim any children on their tax returns, to $1,500.
This provision is included in the current version of the Build Back Better bill and could be extended if the plan passes.
The paid sick and family leave credit
Passed by Congress earlier this year, it extended employers’ ability to take a tax credit against their payroll taxes for offering leave to employees for COVID-19 reasons through Sept. 30, 2021.
This tax break expired Sept. 30, 2021. As of now, there has been no proposal to extend it, but it could be renewed in late legislation.
The expanded child and dependent care credit; the enhanced employer-provided dependent care assistance exclusion
The American Rescue Plan temporarily increased the child and dependent care tax credit to $4,000 for one qualifying individual and $8,000 for two or more. It also temporarily increased the amount eligible employees could exclude from their 2021 taxable income for employer-provided dependent care assistance program benefits to $10,500 (or $5,250 for married individuals filing separately).
Neither provision is proposed for extension in the Build Back Better plan.
Key expiring tax breaks for charitable contributions
The enhanced corporate charitable deduction
Through the CARES Act, the corporate deduction limit for cash contributions to charitable organizations was temporarily increased to 25% of taxable income through 2021. This provision is set to revert to its previous limit of 10%.
The charitable deduction for non-itemizers
The CARES Act gave non-itemizing taxpayers an above-the-line deduction of up to $300 in donations to eligible charities in 2020 and increased the deduction to $600 for joint filers in 2021. There is no proposal to renew this provision at the time of publication.
The enhanced itemized charitable deduction
The charitable giving deduction limit was boosted from 60% of adjusted gross income to 100% of AGI on cash donations for those who itemize in 2020 and 2021. There is no proposal to renew this provision.
Other, more niche tax provisions set to expire include:
- The treatment of mortgage insurance premiums as qualified residence interest.
- The credit for health insurance costs of eligible individuals.
- The credit for nonbusiness energy property.
- The mine rescue team training credit.
- The credit for alternative fuel cell motor vehicles.
- The credit for new qualified fuel vehicle refueling property.
- The two-wheel plug-in electric drive vehicle credit.
- Several business-focused energy credits.
