Bill would untax families’ ARPA credits

Bill would untax families’ ARPA credits

By MARY SELL, Alabama Daily News

While lawmakers are focused this week on how to spend the state’s American Rescue Plan Act funds, some also want to make sure Alabama families aren’t penalized on their state income taxes for credits they receive under the act.

Those ARPA benefits for families were an increased child tax credit, increased dependent care credit and increased and modified earned income credit. Taxpayers had to have earned income from work to be able to claim the later two.

In all, the three provisions totaled about $2 billion in additional pandemic relief benefits for Alabama families.

But under Alabama law, there is no exclusion from the calculation of Alabama taxable income for these one-time pandemic-related federal benefits.

“If the Legislature does not take quick action, Alabama families will pay about $87.7 million in additional Alabama state income tax on these benefits,” Sen. Dan Roberts, R-Mountain Brook, said Wednesday when he filed Senate Bill 2.

“The federal funds were intended to help families and they should get the full benefit,” he said. 

Roberts hoped to move the bill in the ARPA-focused special session, but that seemed doubtful Wednesday evening. Roberts said he’d file the bill in the regular session when it resumes Feb. 1. Rep. Jim Carns, R-Birmingham, has filed the same legislation for the regular session.

“And you can’t tell me anyone with children who is working didn’t have a boatload of changes with their childcare and with their expenses,” Roberts said. “There’s been an inordinate amount of pressure on families. All I want us to do is to comply with exactly the way the feds (handle the credits). This is just the right thing to do.”

Similar legislation was needed in 2021 to prevent the state from collecting taxes on stimulus funds from the 2020 CARES Act. Lawmakers tweaked state code to ensure Alabamians didn’t have to pay state income taxes on those federal funds.

Earlier this year the Alabama Department of Revenue said the ARPA expanded federal tax credits potentially could affect the calculation of Alabama taxable income because it could change the federal tax deduction available to Alabama taxpayers.

“This is for working families,” Roberts said about his bill. “This is the right thing for us to get done,” Roberts said. 

On the Senate floor Wednesday, Roberts’ colleagues prayed for his wife, Anne, who has been hospitalized with COVID-19 since December.

Later, he referenced the nurses and staff taking care of his wife.

“The money belongs to the people, and I don’t want us to go slow and tax this money when it shouldn’t be,” Roberts told Alabama Daily News.

There are 23 co-sponsors on the bill, including Sen. Larry Stutts, R-Tuscumbia, is a co-sponsor. 

“This is important because the money wasn’t intended to be taxed,” Stutts said. “It was intended to get to the people, not for the state or federal government to take more of it back.”