2020 Tax Extenders within the Pandemic Financial system


Key Findings

  • At the end of 2020, 33 temporary tax provisions are scheduled to expire at the federal level. These provisions generally fall under four categories: cost recovery, energy, individual, and other business provisions.
  • Temporary tax policy should be avoided in favor of certainty and stability within the tax code. Congress routinely violates this aspect of sound tax policy by temporarily, and sometimes retroactively, reauthorizing this group of tax provisions, which has earned the collective nickname of “tax extenders.”
  • If Congress desires to retain any of the remaining extenders, it ought to be on a permanent basis rather than temporary extensions. Ideally, most extenders should be allowed to expire permanently going forward, but a thorough review of each provision is warranted.
  • Looking forward, lawmakers will need to address the upcoming expirations of the 2017 Tax Cuts and Jobs Act (TCJA). Congress ought to act sooner rather than later to avoid these provisions becoming new extenders.
  • Separate from the regular group of extenders, many provisions enacted in response to the ongoing public health crisis and economic downturn will expire at the end of this year. While temporary tax policy ought to be avoided in normal times, a temporary economic crisis calls for temporary economic relief; Congress ought to target any additional temporary relief toward those in need and in a manner consistent with good long-term policy.


Nearly every year for more than a decade, a collection of tax provisions for businesses and individuals has routinely expired and then been temporarily reinstated, earning the nickname of “tax extenders.” This year seems to be business as usual, with 33 temporary tax provisions set to expire after December 31.

Congress most recently addressed these expiring provisions in December 2019, retroactively authorizing and extending several provisions that had expired in 2017 and 2018 and setting up the expirations Congress now faces.[1]

Many of the provisions are now familiar as they have routinely come up for extension. Generally, they fall under four categories: cost recovery, energy, individual, and other business provisions. Most are not well-designed policies, but instead represent narrowly targeted preferences for favored industries. The continual uncertainty surrounding their status paired with the temporary nature of extensions renders them less effective at promoting the activities they are intended to incentivize.

If Congress desires to retain any of the extenders, it ought to be on a permanent rather than temporary basis. The best course of action for most extenders would be permanent expiration going forward, but the likelihood of that in the near term seems low.

Looking forward, lawmakers will also need to address the temporary provisions of the 2017 Tax Cuts and Jobs Act (TCJA).[2] Many of the major changes enacted by the law are scheduled to expire or further change over the next several years. Congress ought to review each change to determine whether it should take place as scheduled.

This year has also seen an abundance of new temporary policies created to address the ongoing public health crisis and economic fallout due to the coronavirus pandemic. While in normal times temporary tax policy ought to be avoided, a temporary crisis calls for temporary, targeted relief. Many of the provisions enacted by Congress to meet household and business needs during the crisis have already expired and several remaining provisions will expire at the end of 2020. Given the ongoing nature of the pandemic and economic hardship, Congress ought to target additional temporary relief in a manner consistent with good long-term policy.

Temporary Tax Policy

Temporary tax policy should be avoided in favor of certainty and stability within the tax code.[3] The on-again, off-again history of extenders is a violation of basic sound tax policy.

If the goal of a tax policy is to encourage a taxpayer to make a certain decision, whether as an individual or as a business, that taxpayer needs to know whether and for how long the tax policy will be in place.

Temporary tax provisions, especially when lapsed and reinstated months or years down the road, do not effectively accomplish their stated, primary objective: to encourage certain activities. Instead, because of their often-retroactive nature, these provisions often result in an after-the-fact transfer to narrow groups without incentivizing the intended activity. This is because businesses and individuals cannot go back in time and make different decisions. To the extent people factor an extension of a temporary policy into their decision-making, some provisions may be able to incentivize decisions, but uncertainty undermines this effect. As such, extenders should not be expected to significantly affect the long-run level of economic output.[4]

While uncertainty undermines the effectiveness of extenders, their persistence can at least in part be explained by the way they are accounted for in the 10-year federal budget baseline. Suppose an extender reduces federal revenue by $1 billion a year and Congress decides to extend it for 2021 and 2022. Under current law budget projections, the 10-year cost would be $2 billion because revenues would be expected to fall by $1 billion in both 2021 and 2022 when the provision was scheduled to be in effect and then revenues would be expected to rise in the following eight years when the provision was scheduled to expire. If Congress instead chose to make the provision permanent, the 10-year cost would be $10 billion. Even if it is well-known that Congress would not allow the extender to expire, the cost of the temporary provision remains $2 billion (not $10 billion) over the 10-year budget window.[5]

Current law projections of tax revenue exclude tax extenders because they are not a permanent part of the tax code even though Congress tends to inevitably extend them. In terms of official scorekeeping, temporary extension appears to cost less than permanence because it only affects tax revenues for one or two years instead of across the entire 10-year budget window, even if lawmakers really intend on extending the provisions at a later point. Conversely, letting the extenders truly expire appears to result in no revenue gain because the current law baseline already anticipates the revenue from the scheduled expiration.

Stable tax laws are almost always better than temporary measures, save for certain, specific contexts that call for temporary and targeted solutions.[6] Setting aside the question of whether these 33 extenders are good tax policies in and of themselves, their temporary nature renders them less efficient and less effective than if they were a permanent part of the tax code.

The Remaining Extenders

Many of the remaining extenders were originally designed to phase out, often because they were part of temporary bills like the stimulus package in response to the Great Recession.[7] In 2015, Congress made 19 of the more popular (and in some cases, better designed) extenders permanent and left 34 temporary.[8] Since then, Congress has created additional temporary tax policy, including several components of the TCJA, and permanently repealed others, such as the taxes that were created as part of the Affordable Care Act—the health insurance tax, the so-called Cadillac tax, and the medical device tax.[9] At the end of 2020, 33 extenders related to cost recovery, energy, and individual and other business taxes are scheduled to expire. (For the full list of extenders, see Appendix Table 1.)

Many of the cost-recovery-themed extenders are redundant given 100 percent bonus depreciation under current law, which allows a full and immediate write-off for short-lived assets. However, that provision is likely to become a new extender itself as it is scheduled to begin phasing down after 2022. Cost recovery provisions are less ideal when they are constrained to one specific type of asset, such as the provision which provides a three-year recovery period for racehorses. In this arena, tax policy would be better served if Congress prioritized full and immediate cost recovery for all types of capital investment rather than piecemeal improvements for certain industries.

Another large group of extenders are aimed at energy production. The Joint Committee on Taxation (JCT) explains that two primary motivations for energy-related tax provisions are promoting energy independence and addressing externalities related to pollution.[10] The current mix of energy-related tax provisions is suboptimal for addressing either concern, as the provisions were not developed in a coordinated way and are not permanent parts of the tax code. As is the case with cost recovery, tax policy would be better served if Congress avoided a piecemeal approach and instead worked toward a cogent solution for energy-related tax policy.

The individual and business extenders outside of cost-recovery and energy deal with miscellaneous areas of the tax code and are largely hit or miss. Some are aimed at boosting investment in certain locations; for example, the New Markets Tax Credit[11] and Empowerment Zone tax incentives. Others are aimed at education and mortgage expenses. Still others are related to excise taxes.

Here are a few examples of how Congress might evaluate these miscellaneous extenders:

  • The tuition and fees deduction is duplicative and tends to offer smaller benefits than the tax code’s permanent education provisions that can be taken in lieu of this temporary deduction.[12]
  • The exclusion from gross income for discharge of indebtedness on a qualified principal residence was originally for mortgage debt forgiveness that occurred in years 2007 through 2010. Allowing this provision to expire would broaden the tax base and end a policy that was enacted in response to the housing crisis and Great Recession.
  • Look-through treatment for certain payments between controlled foreign corporations (CFC) allows corporations to exempt certain payments between foreign subsidiaries from U.S. taxable income.[13] Recent regulations promulgated as a result of the TCJA have limited the scope of look-through treatment,[14] but a permanent solution for look-through treatment would eliminate the need for complex tax planning that currently exists to prepare for the possibility that look-through treatment expires. [15],[16]
  • As currently structured, alcohol excise taxes are an ineffective public policy tool, causing more economic harm than benefit. The reduced excise tax rates on alcohol represent the first reform of alcohol excise taxes since 1990, but their temporary nature reduces their effectiveness.[17]
  • Excise tax extenders also deserve evaluation in the context of the ongoing pandemic and resulting economic hardship. Increasing alcohol excise tax rates and other excise taxes that were suspended this year (see Pandemic-Related Expirations below) may create financial hardship for businesses.[18]

Ideally, Congress would evaluate each extender on its own to determine whether any of the provisions are good policy worth permanence. Such a review would require recognizing some key ideas: narrowly targeted benefits can lead to a less efficient allocation of resources; industry specific tax policy is rarely ideal; and there is no reason why dozens of provisions should expire and be extended year after year.

Expiring Provisions under the Tax Cuts and Jobs Act

The TCJA[19] made several significant changes to the U.S. tax code but also created a high level of uncertainty as many of the law’s provisions were scheduled to expire or change over the ensuing decade.

Over the near term, several TCJA provisions will revert or change with the effect of increasing the cost of capital, or the cost of investing in the United States. Rather than allow these changes to occur, especially in the midst of a nascent economic recovery, lawmakers could pursue permanently improved cost recovery.

Later in the decade, most individual income tax changes made by the TCJA will expire. Should this occur, the vast majority of households would see a higher tax burden. Lawmakers should carefully evaluate each provision to determine which are most important to make permanent and which may need revision. Until then, households and businesses will face major uncertainty regarding long-term economic decisions.

Table 1: Major Scheduled Changes in Federal Tax Law

Businesses will be required to deduct research and experimentation costs over five years, rather than immediately

After the end of 2021

The deduction for business net interest expense will be limited to 30% of EBIT, rather than 30% of EBITDA

After the end of 2021

Full expensing for short-life business investments will begin phasing out

After the end of 2022

The reduction of individual income tax rates will expire

After the end of 2025

The increase in the standard deduction, elimination of the personal exemption, and doubling of the child tax credit will expire

After the end of 2025

Limits on the state and local tax deduction and the mortgage interest deduction will expire

After the end of 2025

The reduction of the alternative minimum tax will expire

After the end of 2025

The pass-through deduction (§199A) will expire

After the end of 2025

Three international-related provisions (GILTI, FDII, and BEAT) will become more restrictive

After the end of 2025

The reduction of the estate tax will expire

After the end of 2025

Source: Scott Greenberg, “Tax Reform Isn’t Done,” Tax Foundation, Mar. 8, 2018, https://taxfoundation.org/tax-reform-isnt-done/.

Pandemic-Related Expirations

The federal government response to the ongoing pandemic and resulting economic downturn contained many temporary provisions that have already expired or will soon expire, such as those contained in the Coronavirus Aid, Relief and Economic Security (CARES[20]) Act.[21]

At the end of this year, the following tax-related provisions expire:

  • Waiver of the 10 percent early distribution penalty for hardship withdrawals from retirement accounts and of required minimum distribution rules for certain retirement plans.
  • Extension of unemployment benefits for an additional 13 weeks and to self-employed workers, independent contractors, and those with limited work history.[22]
  • Delay of employer-side Social Security payroll tax payments, with 50 percent owed on December 31, 2021 and the other half owed on December 31, 2022.
  • Expansion of the charitable deduction, including a $300 partial above-the-line charitable contribution for filers taking the standard deduction and higher limit on charitable contributions for itemizers.
  • The Employee Retention Tax Credit, a 50 percent refundable payroll tax credit on wages paid up to $10,000 during the crisis available to certain employers.
  • Loosening of the net interest deduction limitation from 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA) to 50 percent of EBITDA.
  • Suspension of alcohol excise taxes on alcohol used to produce hand sanitizer.
  • Suspension of aviation excise taxes.
  • Deferral of employee-side payroll taxes.[23]

As the pandemic and economic hardship continue, Congress will consider additional relief. Further relief for the temporary economic crisis should be provided by temporary provisions that are well targeted toward the crisis at hand and consistent with good long-term policy.[24]


Congress ought to resolve the status of tax extenders and provide taxpayers with a stable, certain tax code. Though it is unlikely to happen in the near term, each expiring provision should be evaluated to determine whether it deserves a permanent place in the U.S. tax code. Similarly, reviewing and deciding how to move forward with the upcoming expirations of the TCJA provisions well ahead of time would be well-advised.

Deciding on permanence for these provisions would also enable a more straightforward accounting of the budgetary cost of each provision. The status quo of enacting repeated short-term extensions plays the budget game and obscures the real cost of these provisions. Congress should target any additional temporary economic relief for the ongoing crisis toward those who need it most in a way that does not undermine long-term economic incentives.

Ultimately, taxpayers should not have to gamble on what tax code they are operating under.


Appendix Table 1. List of provisions expiring December 31, 2020

Provision Summary

1. Credit for certain nonbusiness energy property (sec. 25C(g))

Credit for 10 percent of expenditures on energy-efficient home improvements, up to $500.

2. Credit for qualified fuel cell motor vehicles (sec. 30B(k)(1))

Credit of $4,000 up to $40,000, depending on weight, for fuel cell vehicles.

3. Credit for alternative fuel vehicle refueling property (sec. 30C(g))

30 percent credit for property that dispenses alternative fuels such as ethanol, up to $30,000 for businesses and $1,000 for individuals.

4. Credit for two-wheeled plug-in electric vehicles (sec. 30D(g)(3)(E)(ii))

10 percent credit of the cost of battery-powered vehicles that have only two wheels, up to $2,500.

5. Credit for health insurance costs of eligible individuals (sec. 35(b)(1)(B)) (Health Coverage Tax Credit)

Individual credit for Trade Adjustment Assistance or Pension Benefit Guaranty Corporation recipients for 72.5 percent of qualified health insurance premiums

6. Second generation biofuel producer credit (sec. 40(b)(6)(J))

Allows a 50 percent deduction of the adjusted basis in the first year of in-service second-generation biofuel plants.

7. Beginning-of-construction date for renewable power facilities eligible to claim the electricity production credit or investment credit in lieu of the production credit (secs. 45(d) and 48(a)(5))

Production tax credit of 1.2 or 2.4 cents per kWh for power produced, depending on type of facility, during the 10-year period after being placed in service.

8. Credit for production of Indian coal (sec. 45(e)(10)(A))

Production tax credit of $2 per ton for coal produced from reserves owned by an Indian tribe.

9. Indian employment credit (sec. 45A(f))

20 percent credit of up to $20,000 for qualified wages and employee health insurance costs.

10. New markets tax credit (sec. 45D(f)(1))3

Credit for 39 percent of an equity investment in a qualified community development entity.

11. Credit for construction of new energy-efficient homes (sec. 45L(g))

Credit to the contractor or manufacturer of $1,000 or $2,000 per certified energy-efficient new home.

12. Mine rescue team training credit (sec. 45N(e))

20 percent or up to $10,000 credit of the amount paid for mine rescue team employee training program costs.

13. Employer credit for paid family and medical leave (sec. 45S(i))

Business tax credit between 12.5 and 25 percent, depending on percent of wage replaced, of payments to an employee on qualifying paid medical or family leave.

14. Work opportunity credit (sec. 51(c)(4))

Business tax credit for hiring certain workers calculated as a percentage of wages up to a maximum between $2,400 and $9,600 depending on the type of qualified worker.

 15. Exclusion from gross income of discharge of indebtedness on principal residence (sec. 108(a)(1)(E))

Exclusion from gross income of up to $2 million (for married households) for discharge of indebtedness on a qualified principal residence.

16. Benefits provided to volunteer firefighters and emergency medical responders (sec. 139B(d))

Exclusion from gross income of qualified benefits received by emergency responders.

17. Treatment of premiums for certain qualified mortgage insurance as qualified residence interest (sec. 163(h)(3)(E)(iv))

Allows mortgage insurance premiums paid in connection with a principal residence or a second home to be deductible with mortgage interest.

18. Three-year recovery period for racehorses two years old or younger (sec. 168(e)(3)(A))

Three-year write-off period for racehorses two years old or younger.

19. Seven-year recovery period for motorsports entertainment complexes (sec. 168(e)(3)(C)(ii) and (i)(15)(D))

Seven-year write-off period for motorsports entertainment complexes, including ancillary and support facilities and land improvements.

20. Accelerated depreciation for business property on an Indian reservation (sec. 168(j)(9))

Shorter depreciation schedules for certain property used to conduct business within an Indian reservation. For example, 10-year property receives a recovery period of six years under this provision.

21. Special depreciation allowance for second generation biofuel plant property (sec. 168(l)(2)(D))

Allows a 50 percent deduction of the adjusted basis in the first year of in-service second-generation biofuel plants.

22. Energy-efficient commercial buildings deduction (sec. 179D(h))

Provides a tax deduction of up to $1.80 per square foot of a building for the cost of energy-efficient property such as energy-efficient windows or HVAC systems.

23. Special expensing rules for certain film, television, and live theatrical productions (sec. 181(g))

Full expensing (up to $15 million, or $20 million for certain areas) for qualified film, television, or live theatrical production costs.

24. Medical expense deduction: adjusted gross income (AGI) floor set at 7.5 percent (sec. 213(f))

Individuals may claim an itemized deduction for unreimbursed medical expenses paid during the taxable year to the extent that the expenses exceed 7.5 percent (as opposed to 10 percent)

25. Deduction for qualified tuition and related expenses (sec. 222(e))

Deduction for college tuition and other related expenses, up to $4,000 per year, subject to income limitations.

26. Special rule for sales or dispositions by a qualified electric utility to implement Federal Energy Regulatory Commission (“FERC”) or state electric restructuring policy (sec. 451(k)(3))

Allows electric utilities the option to recognize gains from transmission property sales over an eight-year period if the gains are used to purchase exempt utility property.

27. Look-through treatment of payments between related controlled foreign corporations under the foreign personal holding company rules (sec. 954(c)(6)(C))

Rule that dividends, interest, rents, and royalties earned or paid out between two related CFCs are not treated as U.S. corporate income.

28. Empowerment zone tax incentives

Tax-exempt bond financing, 20 percent wage credit, accelerated depreciation, and capital gains deferral in designated areas.

29. Black Lung Disability Trust Fund: increase in amount of excise tax on coal (sec. 4121(e)(2))

Temporary increase on the excise tax rates on coal.

30. Oil Spill Liability Trust Fund financing rate (sec. 4611(f)(2))

Temporary increase in the rate generally applied to crude oil received at a U.S. refinery and to petroleum products entered into the United States for consumption, use, or warehousing.

31. Provisions modifying the rates of taxation of beer, wine, and distilled spirits, and certain other rules (secs. 263A(f)(4), 5001, 5041, 5051, 5212, and 5414)

Reduced excise tax rates on beer, wine, and distilled spirits and other rule changes.

32. Incentives for alternative fuel and alternative fuel mixtures

Excise tax credit of 50 cents per gallon for alternative fuel and alternative fuel mixtures.

33. American Samoa economic development credit (sec. 119 of Pub. L. No. 109-432, as amended)

Credit against corporate income taxes based on business activity in American Samoa.

Source: The Joint Committee on Taxation, List of Expiring Federal Tax Provisions 2020-2029.

[1] Erica York, “Lawmakers Agree to Let Extenders Live On,” Tax Foundation, Dec, 18, 2019, https://taxfoundation.org/tax-extenders-cadillac-tax-medical-device-tax-repeal/.

[2] See Scott Greenberg, “Tax Reform Isn’t Done,” Mar. 8, 2018, Tax Foundation, https://taxfoundation.org/tax-reform-isnt-done/.

[3] Of course, there are exceptions that make the rule, such as timely, temporary, and targeted relief during the ongoing pandemic.

[4] Scott Greenberg, “A Unified Theory of Some of the Common Misconceptions in the Tax Reform Debate,” Tax Foundation, Aug. 21, 2017, https://taxfoundation.org/unified-theory-misconceptions-tax-reform-debate/. 

[5] Under the expectation that this $1 billion annual extender would not be allowed to expire, the current policy baseline would show the 10-year cost as $10 billion. The current policy baseline would not count “phantom revenues” from scheduled expirations that are not expected to occur.

[6] Perhaps the only context in which temporary policies might be warranted is to address temporary situations, such as temporary, targeted, and timely relief for the ongoing pandemic.

[7] Alan Cole, “Extenders and the Opportunity for Tax Reform,” Tax Foundation, Nov. 19, 2014, https://taxfoundation.org/extenders-and-opportunity-tax-reform/.

[8] Scott Greenberg, “The Twelve Most Important Provisions in the Latest Tax Bill,” Tax Foundation, Dec. 17, 2015, https://taxfoundation.org/twelve-most-important-provisions-latest-tax-bill/.

[9] Erica York, “Lawmakers Agree to Let Extenders Live On,” Tax Foundation, Dec. 18, 2019, https://taxfoundation.org/tax-extenders-cadillac-tax-medical-device-tax-repeal/.

[10] The Joint Committee on Taxation, “Federal Tax Provisions Expired In 2017 And 2018 And Expiring In 2019,” Mar. 8, 2019.

[11] Chad Qian, “An Overview of the New Markets Tax Credit,” Tax Foundation, July 8, 2019, https://taxfoundation.org/new-markets-tax-credit-nmtc/.

[12] The Joint Committee on Taxation, “Federal Tax Provisions Expired In 2017 And 2018 And Expiring In 2019.”

[13] Andrew Lundeen and Kyle Pomerleau, “Not All Tax Extenders Are Worth Extending,” Tax Foundation, Jan. 22, 2014, https://taxfoundation.org/not-all-tax-extenders-are-worth-extending/.

[14] EY, “US temporary and proposed DRD regulations reflect GILTI-centric view of international tax rules enacted under TCJA,” June 21, 2019, https://taxinsights.ey.com/archive/archive-news/us-temporary-and-proposed-drd-regulations-reflect-gilti-centric.aspx

[15] David R. Sicular, “The New Look-Through Rule: W(h)ither Subpart F?” Tax Notes, Apr. 23, 2007 https://www.taxnotes.com/tax-notes-today-international/corporate-taxation/new-look-through-rule-whither-subpart-f/2007/05/11/7975946.

[16] For more information on the U.S. international tax system, see Kyle Pomerleau, “A Hybrid Approach: The Treatment of Foreign Profits under the Tax Cuts and Jobs Act,” Tax Foundation, May 3, 2018, https://taxfoundation.org/treatment-foreign-profits-tax-cuts-jobs-act/.

[17] Erica York, “Permanence for Alcohol Excise Tax Reforms,” Tax Foundation, Oct. 30, 2018, https://taxfoundation.org/alcohol-excise-tax-reforms-permanent/.

[18] Doug Sword, “Expiring breaks for brewers, airlines driving tax extenders push,” Roll Call, Oct. 13, 2020, https://www.rollcall.com/2020/10/13/expiring-breaks-for-brewers-airlines-driving-tax-extenders-push/.

[19] P.L. 115-97, §13206.

[20] S.3548 116th Congress (2019-2020), “CARES Act,” https://www.congress.gov/bill/116th-congress/senate-bill/3548.

[21] See Garrett Watson, Taylor LaJoie, Huaqun Li, and Daniel Bunn, “Congress Approves Economic Relief Plan for Individuals and Businesses,” Tax Foundation, Mar. 30, 2020, https://taxfoundation.org/cares-act-senate-coronavirus-bill-economic-relief-plan/.

[22] Taylor LaJoie, “”Evaluating the Trade-offs of Unemployment Compensation Changes in the CARES Act,” Tax Foundation, Mar. 27, 2020, https://taxfoundation.org/unemployment-compensation-changes-cares-act/.

[23] White House, “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster,” Aug. 8 2020, https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/.

[24] See Erica York, “What Should Coronavirus Response Legislation Look Like?” Tax Foundation, Mar, 24, 2020, https://taxfoundation.org/coronavirus-response-legislation-guidelines/.