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If the US Congress passes major changes to federal income tax laws, such as new income tax rates, what is the soonest that those changes would normally take effect? Would it be the same year, if passage were early enough in the year? How early in the year would it have to be? Or would it normally take effect the following year?

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    The cynical answer is that it depends on the lobbying power of the beneficiaries of the changes. Dec 16, 2020 at 14:02

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Congress sets the tax rates with their laws. They also pick the date it goes into effect.

It can start far in the future, in a just a few days, immediately, in the recent past, or even last year. There is no standard.

This has caused problems because the IRS has had to scramble to change tax forms and instructions. They have had to change tax tables and withholding calculators.

Examples:

  • In December 2017 they made massive changes to the taxes. The law set a date for some of the changes, specifically related to mortgage deductability. The law was passed and signed a few days after the date specified in the law. Some people after they settled on the house or after they had refinanced now were impacted by the new law, which changed their tax situation.

  • Many times the congress waited until December to address the AMT, which meant that some tax payers didn't know their tax rate until 11.5 months into the tax year. So the effective date was 11.5 months in the past.

  • One year they waited until January the next year to set the maximum monthly value for the commuter benefit. So it was 12 months in the past.

  • Going back to the 2017 changes the December passage meant that some people only had a short time to pay some bills, or make some charitable contributions in order to get them in just before the changes would have made them moot. In my county there was a line to pre-pay property tax before the end of December, later it was determined that the pre-payment wasn't tax deductible. So they want 3 days in the past.

  • My state (Virginia) spent all of 2018 trying determine what changes they needed to make in response to the Federal tax changes, they ended up making no big changes. That meant that the entire year we didn't know what the Virginia income tax rates would be.

There is no standard.

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  • An example was the "Individual Shared Responsibility Provision" (which was a fine of a couple thousand bucks for anyone who didn't have health insurance). Googling, trump axed it Jan 20 2017 BUT our US friends still had to pay it on the 2017 and 2018 returns. it was not until the 2019 returns - ie what you pay at the start of 2020 - it was out. So really "three years" (!) for that one.
    – Fattie
    Dec 16, 2020 at 16:25
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    This does not seem to answer the question "what is the soonest that those changes would normally take effect?"
    – RonJohn
    Dec 16, 2020 at 16:36
  • @Fattie: no, Trump did not 'axe' the ISRP; in spite of his attempts to be Louis XIV the US president is actually subject to law like everybody else, and ISRP was law. It was eliminated by the same law mhoran cites (TCJA enacted in Dec. 2017) with sec 11081 explicitly effective 'after Dec. 31 2018' Dec 18, 2020 at 4:50
  • And more recently, the Taxpayer Certainty(!) and Disaster Tax Relief Act, Division Q of the Further Consolidated Appropriations Act 2020 enacted Dec. 20 2019, extended or changed numerous items (including home mortgage interest, if that is of interest to you) RETROACTIVE TO 2018!! Dec 18, 2020 at 5:28
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It depends.

  1. The law itself might say, "It goes into effect on X date."
  2. Typically, though, it's "90 days after the session ends".

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