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.
The bill modifies existing provisions in the Alabama tax code to provide a clearer path for taxpayers benefitting from these credits. By calculating the federal income tax deduction as if the taxpayers paid their federal income tax under the rules in effect before the American Rescue Plan, residents will avoid being penalized at the state level for taking advantage of federal relief measures. This legislative change could potentially maintain more disposable income for families who depend on these credits, thus supporting local economies.
House Bill 147 addresses the taxation law regarding the federal child tax credit, earned income tax credit, and child and dependent care tax credit that were expanded under the American Rescue Plan Act of 2021. This bill aims to ensure that the deductions allowed for federal income tax paid by Alabama taxpayers for the tax year ending on December 31, 2021, do not account for the reductions in federal tax attributable to these additional credits. The goal is to allow individuals to fully benefit from the enhanced federal credits without incurring additional state tax liabilities.
There may be points of contention surrounding HB147, as the impact of changes in state tax laws can be debated. Proponents of the bill argue that it aligns Alabama's tax policies with federal changes aimed at reducing financial strain on families, particularly amidst ongoing economic challenges. However, opponents could raise concerns about the long-term implications of conforming state tax laws closely to federal policies, questioning whether such alignment might constrain the state's fiscal flexibility or complicate future tax reforms.