Alabama Gov. Kay Ivey (R) has signed House Bill 231 (HB231) into law. The legislation is expected to save Alabamians $87 million in state taxes on the advance federal child tax credits that they received as part of last year’s American Rescue Plan Act (ARPA). The ARPA relief dollars were already tax-free under federal law, but were subject to the 5% state of Alabama income tax. 

HB231 was sponsored by State Rep. Jim Carns (R–Vestavia) and carried in the State Senate by State Sen. Dan Roberts (R–Mountain Brook). Senate Bill 152 (SB152) was Roberts’ Senate version.

Ivey’s signature on this piece of legislation means that Alabamians will save on their state income taxes.

“I am proud to sign this needed tax relief into law so that money will return directly into the hands of hardworking Alabamians,” said Ivey. “I commend the Alabama Legislature for their work on this and look forward to this benefitting Alabama families this tax season.”

“Thank you, Governor Kay Ivey, for signing this Bill into Law helping Alabama families.” Roberts said on social media. “As the sponsor of SB152, I was proud to work with the Senate today to concur with work done in the House. This bill guarantees Alabamians will not be penalized for benefitting from expanded tax credits included in federal COVID-19 relief and will save these hardworking Alabama families an extra $87.7 million in state income taxes. This money belongs to the people, not the state government.”

Effective for the tax year ending on Dec. 31, 2021, this act allows individual taxpayers to calculate their federal income tax deduction without consideration of certain items allowed under the American Rescue Plan Act. Any reductions to the federal income tax attributable to the federal child tax credit, the earned income tax credit and federal child and dependent tax credits, will be calculated under the provisions of the Internal Revenue Code in effect on December 31, 2020. The increased federal income tax deduction will reduce the amount of tax due on an Alabama individual income tax return.

For more information on how to receive this additional tax deduction or how to amend a current return if already filed, visit the Alabama Department of Revenue’s 2021 Federal Tax Deduction fact page.

The federal government has pumped more than $52 billion into the state in COVID-19 relief dollars during both the Trump and Biden administrations. ARPA is just the most recent of the COVID stimulus payments.

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