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ARPA Tax Relief

2021 Federal Income Tax Deduction Facts and

the Impact of Act 2022-37

Governor Kay Ivey’s Press Release

What types of Federal American Rescue Plan Act (ARPA) funds might qualify me for an increased federal income tax deduction?

  • Federal child tax credit (including advanced payments received in 2021)
  • The earned income tax credit
  • Federal child and dependent care credits

If you did not claim any of the above credits on your federal return, then you are not eligible for the enhanced Alabama Federal Income Tax Deduction.

Update: If you received advanced child tax credit payments or received the refundable portion of the federal child and dependent care credits, you may have already received an enhanced federal income tax deduction. The worksheet used to calculate deduction before the passage of Act 2022-37 did not reduce your federal income tax deduction by those credits.

What do I do if I have already filed my 2021 individual tax return before the enactment of Act 2022-37 and I received ARPA funds during tax year 2021?

Taxpayers who filed using My Alabama Taxes or Paper Returns – Individual taxpayers who filed their 2021 tax return prior to the passage of Act 2022-37 may amend their return to take advantage of this deduction. At this time amended returns can only be submitted by filing a paper return. Updated instructions and the federal income tax deduction worksheet can be found here.

Form 40 Booklet

Form 40NR Booklet

Form 40A Booklet

2021 Federal Income Tax Deduction worksheet

Update: ALDOR has created an Excel spreadsheet to assist in the calculation of the federal income tax deduction for paper or MAT filers.  To use this spreadsheet you must have your completed 2021 Federal 1040/1040-SR/1040NR and all schedules, forms and worksheets used to calculate your federal income tax.

If you did not claim the federal child tax credit, earned income tax credit or federal child/dependent care credit, you do not need to amend your return and you are not eligible for an enhanced Alabama Federal Income Tax Credit.

E-file Taxpayers – Individual taxpayers who have e-filed their 2021 tax return do not need to file an amended return to take advantage of the enhanced Alabama federal income tax deduction. The department will automatically recompute the federal income tax deduction for eligible individual taxpayers who e-filed prior to the forms being updated by the tax software providers. 

What do I do if I have NOT already filed my 2021 individual tax return and I received ARPA funds during tax year 2021?

Paper Filing Taxpayers – Individual taxpayers who have not filed their 2021 paper tax return can find updated instructions and federal income tax deduction worksheet here.

Form 40 Booklet

Form 40NR Booklet

Form 40A Booklet

2021 Federal Income Tax Deduction worksheet

Filing Using My Alabama Taxes – My Alabama Taxes will be updated and ready for filing soon.

E-file Taxpayers – Individual taxpayers who have not electronically filed their 2021 tax return are encouraged to contact their software vendor to verify the required programming has been updated. Software vendors who have been approved by the Alabama Department of Revenue can be found here https://www.revenue.alabama.gov/individual-corporate/individual-income-tax/approved-software-vendors/. Any returns submitted before the form changes are made by the software will automatically be adjusted by the department if the change will result in a higher federal income tax deduction.

We encourage paid preparers and e-file taxpayers to ensure that their tax filing software has been updated with the changes before filing.  The updates can only be used after the most recent version of the software is downloaded. 

***Update – while software vendors have made changes to their software to handle the updated FIT deduction worksheet, we understand that some software packages have not been updated to automatically make the 2020 alternate calculations required in Part II Lines 3, 4, 8b and 9e and are requiring the preparer to make the calculations outside the software and enter the results in the software’s FIT Deduction worksheet. While the software vendors are still working on implementing the required calculations, preparers may have ALDOR make the additional calculations by entering ”9999999999” on the FIT worksheet, Part II, Line 3 – for any returns where they do not manually recalculate the 2020 amounts. Some software packages are programmatically doing this for the client. By entering “9999999999” in Part II Line 3, the deduction will be tentatively calculated based on Part I of the worksheet and will instruct ALDOR systems to make the alternate 2020 calculations in Part II and update the FIT deduction as necessary when processing the return. 

Caution – if not using the “9999999999” to have ALDOR calculate Part II Lines 3, 4, 8b and 9e, do not default to entering all zeros in these fields or leave them blank unless they are computed to be zero, defaulting all of these fields to zero or blank may overstate the deduction and subject the deduction to be reduced on review.

Will I need to extend my individual tax return?

An automatic six-month extension is granted until October 17, 2022, for 2021 individual income tax returns.  However, there is no extension for payments. Payments are due by April 18, 2022, the original due date of the return.

This page will be updated as more information becomes available.

For additional questions please visit our Help Center for the appropriate contact information.

Updated April 8, 2022