Taxation, income tax, exclusion of enhanced federal child tax credits from American Rescue Plan Act from calculation of federal income tax deduction for tax year 2021, to provide an extension of the due date for certain taxpayers, Secs. 40-16-3.1, 40-18-39.1 added.
In addition to addressing individual tax deductions, SB2 introduces provisions for the filing dates of corporate income tax returns and financial institution excise tax returns. It allows for a one-month extension for these tax returns for tax years beginning on or after January 1, 2021, thus providing taxpayers with additional time to comply with new tax calculations without incurring late penalties. This measure aims to alleviate some of the pressure on businesses and financial institutions in adapting to changes in tax obligations arising from both federal and state law adjustments.
SB2 is a newly introduced legislation aimed at modifying the tax laws in Alabama. The bill primarily deals with the treatment of federal income tax deductions regarding the enhanced federal child tax credit, earned income tax credit, and child and dependent care tax credit provided through the American Rescue Plan Act of 2021. It specifies that for the tax year ending December 31, 2021, taxpayers will calculate their federal income tax deductions without accounting for the reductions attributed to these federal credits. This change is intended to ensure residents do not pay state income tax on portions of the enhanced federal credits they received, effectively allowing them to benefit fully from the federal relief measures.
Notably, the bill's implications on state tax revenue and the enforcement of tax compliance have raised discussions among legislators. Supporters argue that the bill is a necessary response to the financial challenges faced by individuals as a result of the ongoing pandemic, emphasizing the need for local tax laws to align with federal support initiatives. Conversely, critics caution that such deductions and extensions may lead to reduced state revenue, impacting public services dependent on tax income. Balancing the immediate economic relief for taxpayers and the long-term financial health of the state remains a significant point of contention as the bill moves forward.