A month from now, on September 30, 2021, a number of business tax credits end. Others are scheduled to expire at the end of the year. Of course, any of these credits may be extended by Congress. But in case they aren’t, here’s a list of business-related tax credits (and a few income tax rules) set to run out soon. In some instances, you are stuck with the end of the break and there’s not much to be done. However, in other cases, you may be able to act now and capitalize on an opportunity that is soon to end.
Employment tax-related tax credits
Due to the pandemic, Congress created a number of measures for employers to provide help to their employees. The cost of doing so was covered by refundable employment tax credits. Credits set to expire at the end of Q3 2021:
- COBRA assistance premium credit. This credit covers the cost of paying for COBRA coverage from April 1, 2021, through September 30, 2020, for employees who were involuntarily terminated or had reduced hours. The IRS has details.
- COVID-19-related paid sick leave credit. This credit covers the cost of employee compensation for those who need to take time off due to the pandemic. Offering this benefit to employees in 2021 is voluntary; limitations apply. The IRS has details.
- COVID-19-related paid family leave credit. This credit covers the cost of employee compensation for those who have to care for a spouse or certain other person with the virus, or for certain other reasons. Offering this benefit to employees in 2021 is voluntary; limitations apply. The IRS has details.
The expiration means employers may claim the credits on Form 941 for the third quarter of 2021.
Note: Another employment tax credit—the employee retention credit—is scheduled to expire at the end of the year. However, the pending infrastructure measure that passed the Senate could limit the credit through September 30, 2021.
Income tax credits
A variety of income tax credits are scheduled to run only through December 31, 2021. They include:
- Credit for qualified fuel cell motor vehicles
- Credit for alternative fuel vehicle refueling property
- Credit for two-wheeled plug-in electric vehicles
- Second generation biofuel producer credit
- Indian employment credit (yes, this is the official title of the credit in the Tax Code)
- Credit for construction of new energy efficient homes
Other income tax rules set to expire
In addition to expiring tax credits, several other income tax rules are set to end on December 31, 2021:
- Limitation on business interest expense deduction. Businesses that don’t qualify as small businesses, or aren’t farming or real estate businesses that make a special election, there is a limit on the deduction for interest expense. The rules for figuring the limit change after 2021. The computation of adjusted taxable income is made without regard to any deduction allowable for depreciation, amortization, or depletion for purposes of the limitation on business interest.
- Depreciation. Three-year recovery period for racehorses two years old or younger.
- Charitable contribution deductions. For C corporations, the 25% of taxable income limit for cash contributions in 2021 ends; the old 10% limit applies. Similarly, enhanced deductions for food inventory contributions, as well as for cash contributions by individuals (e.g., donations by partnerships and S corporations passed through to owners), also expire.
- Health care and dependent care FSAs. Special rules applicable for 2021, such as increased carryover limits, cease to apply. However, unused amounts in 2021 may still be carried over to 2022.
As American entrepreneur Victor Kiam (of Remington products fame), said: “Procrastination is opportunity’s assassin.”
Take advantage of tax breaks while you can. Discuss these and more with your CPA or other tax adviser now; don’t delay.