Legislature passes tax bill, Alabamians may want to wait to file 2021 returns

Legislature passes tax bill, Alabamians may want to wait to file 2021 returns

BY MARY SELL, Alabama Daily News

MONTGOMERY, Ala. – After multiple attempts in the last year, state lawmakers on Thursday approved legislation that will save Alabama families about $87 million on their 2021 state income taxes.

But taxpayers shouldn’t file their returns just yet. And if they already have, they may want to amend them later.

Senate Bill 152 by Sen. Dan Roberts, R-Mountain Brook, and House Bill 231 by Rep. Jim Carns, R-Vestavia Hills, make a needed tweak to the state tax code to ensure working family tax credits under the American Rescue Plan Act don’t mean higher state income taxes.

The House version got final passage from the Legislature but will have to wait until next week before Gov. Kay Ivey can sign it into law. The bill didn’t get transmitted to her office before lawmakers adjourned Thursday.

Without the change, the expanded federal tax credits provided under ARPA potentially could affect the calculation of Alabama taxable income because it could change the federal tax deduction available to Alabama taxpayers. 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 latter two.

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

The legislation is largely the work of Sen. Dan Roberts, R-Mountain Brook. He previously carried it in last year’s regular session and the January special session. He estimates the change will save Alabamians about $90 per child. For working families with multiple children, that could be meaningful, he said.

“We’ve fought hard to let them keep this money and it’s never the wrong time to do the right thing,” Roberts said. “We started on this in April and we finally got it passed (Thursday).”

Support for the bills has been overwhelming. House Bill 231 passed both chambers unanimously this week, but some have expressed frustration that the legislation didn’t move sooner given that it is now tax season and many file their taxes as soon as they can.

The Senate version of the bill by Roberts passed that chamber early this month. But because the state constitution says bills affecting state tax revenue have to start in the House, it was Rep. Jim Carns’ House version that needed final approval.

“Gov. Ivey is pleased to see the Legislature pass HB231 to provide tax relief for the people of Alabama,” spokeswoman Gina Maiola said Thursday. “She looks forward to receiving the bill and putting money back into the hands of hardworking Alabamians.”

Bruce Ely, a partner at the Birmingham-based Bradley Arant law firm who specializes in tax law, said most Alabamians wait until closer to April 15 to file taxes and they’ll benefit from the law change. He said those wanting to file now should wait a week or two after Ivey signs the bill to allow tax preparers to get the updated state code.

Those who have already filed, Ely said, need to file an amended return if they want to get the refund. He said at least a portion of those people won’t bother with it.

“That’s unfortunate, but I think that’s the practical reality,” Ely said. “It there’s a small amount of money involved, people just won’t bother with it.”

If people have filed already, they have two years to file the refund claim, Ely said.

“I would hope the department will grant refund claims relatively quickly,” Ely said.

Lawmakers in early 2021 tweaked state code to ensure Alabamians didn’t have to pay state income taxes on federal funds received from Congress’ relief COVID-19 relief packages in 2020.