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Tax extenders bill adds twist to tax season!

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TLDR:

  • The House Ways and Means Committee has reported the text of the Tax Relief for Workers and Families Act, which is a tax extenders package aimed at reviving several expired tax breaks.
  • However, disagreements over provisions in the bill mean it is unlikely to pass before the start of tax-filing season.

The bipartisan Tax Relief for Workers and Families Act, which includes a number of expired tax breaks, was recently reported by the House Ways and Means Committee. The bill includes provisions such as deductions for research and development expenses in the first year, enhancements to the Child Tax Credit, 100% bonus depreciation, and improvements to the Low-Income Housing Tax Credit. Congressional leaders had hoped to pass the $78 billion bill before the start of tax-filing season on January 29, but disagreements over some provisions have made it unlikely. Last week, lawmakers introduced amendments to lift the $10,000 cap on state and local tax deductions and allow the enhanced Child Tax Credit to provide monthly payments to families. However, these amendments were voted down in committee. Despite this, advocates are still hoping to include these items, as well as others, in the bill.

The Tax Relief for Workers and Families Act is mainly funded by ending the Employee Retention Credit (ERC) at the end of the month and increasing penalties for fraudulent claims. Historically, tax extender bills have not been paid for, but this one is funded by looking at the provisions of the ERC. The bill’s funding demonstrates the sensitivity of congressional leaders to deficits and budget gaps.

The Internal Revenue Service (IRS) has recently introduced a voluntary disclosure program for taxpayers who may have mistakenly claimed the ERC. Taxpayers can either withdraw the claim if it hasn’t been paid yet or return the money if it has already been paid. The program also asks employers about the promoters who encouraged them to make exaggerated claims about available money. The IRS hopes to encourage employers to return funds through this program, as they understand that employers may have been misinformed.

The IRS will face challenges this tax season as it deals with ERC claims and disclosure programs, as well as changing tax laws. Tax clients are hoping for a smooth tax season like last year, and many are already counting on the extenders bill being passed. Despite the challenges, the relief provided by the bill is welcome, and taxpayers are prepared for the filing obligations that come with it.

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