On January 31, 2024, the House passed Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), a bipartisan effort to provide tax relief to individuals, families, and businesses all across America. The bill now moves to the Senate. While the bill shares bipartisan support, Congressional leaders have been slow to agree on exactly how to provide relief. The bill was crafted by Senate Finance Committee Chair Ron Wyden (D-Oregon) and House Ways and Means Committee Chair Jason Smith (R-Missouri), and while the actual full text of the bill hasn’t been released yet, Smith and Wyden released a copy of the framework, major provisions of which are summarized below.
1. Expanding the Child Tax Credit
One of the central tenets of the act is the expansion of the Child Tax Credit. The proposal provides a higher amount to individual taxpayers qualifying for the credit, starting with $1,800 in 2023; $1,900 in 2024; and $2,000 in 2025. It should be noted that the 2024 and 2025 amounts will have an additional indexing for inflation. The bill allows qualifying taxpayers to use their current or prior year earned income to take advantage of the full amount of the credit.
2. Business Bonus Depreciation at 100%
One of the most popular business tax provisions of the last several years has been 100% “bonus depreciation” for purchases of qualified new and used equipment and improvements. For many years, qualified purchases were permitted to be written off in their entirety at 100%. But for 2023, current law brought the bonus depreciation threshold down to 80%; then 60% in 2024; and 40% in 2025. The proposed tax legislation would reinstate 100% bonus depreciation for 2023 through December 31, 2025. But then beginning January 1, 2026, the threshold would take a nosedive to 20%.
3. Research and Experimentation Deductible Again
Under current law, a law that began in 2022, research and experimentation costs are required to be capitalized and amortized over 5 years for domestic research, and 15 years if for foreign research. Immediate expensing is no longer permitted. Even small business and construction contractors found themselves subject to the research and experimentation rules. The new bill would reinstate immediate expensing of domestic research and experimentation costs paid or incurred effective January 1, 2022 through December 31, 2025. There would be no change in the capitalization and 15-year amortization of foreign research costs though. It’s not yet clear on how Congress proposes to make taxpayers whole who capitalized research and experimentation costs in 2022 and 2023. Theories include filing an amended return or immediate expensing in 2023 of previously unamortized research and experimentation costs from 2022.
4. Interest Expense Limitation
Another unwelcome tax item in 2022 was the elimination of an add-back to adjusted taxable income for depreciation, amortization and depletion in the calculation of the interest expense limitation. This resulted in many companies who previously weren’t subject to any limitation in deducting interest, becoming limited in their interest deductions. The new bill would reinstate the old rules that are more favorable in the calculation of adjusted taxable income for 2024 and 2025, with an election available for the favorable treatment for 2022 and 2023. How the election will be implemented has not yet been provided.
5. Forms 1099-NEC and 1099-MISC
Many trade or business owners know that the 1099 threshold for issuing Forms 1099-NEC and 1099-MISC hasn’t been indexed for inflation in many years—it currently sits at $600. The bill would raise that threshold to $1,000 beginning with 2024, and then be subject to annual inflation adjustments each year thereafter.
Employee Retention Credit Implications
The highly controversial Employee Retention Credit (ERC) is the source of revenue offsets for this bill. To provide background, third-party promoters of the ERC utilized aggressive and oftentimes fraudulent tactics in convincing business owners to file for the ERC. In response, the IRS has placed a moratorium on the processing of any further ERC claims. Measures in the bill provide for an extended statute of limitations to 6-years for the IRS to audit the ERC credit, and third-party promoters of the credit would have to provide client lists to the IRS upon request. In addition, the bill provides for a deadline of January 31, 2024 for businesses to file for the credit. Under current law, the statute of limitations and therefore the deadline to file ERC claims is April 15, 2024 for the 2020 year and April 15, 2025 for the 2021 year. Since January 31, 2024 has come and gone under IRS moratorium, this provision of the bill could be contested.
Other Provisions
There are many other provisions in the new bill, such as enhancing the Low Income Housing Credit in 2023 through 2025 and more favorable treatment for disaster-related personal casualty losses incurred on or after January 1, 2020.
Conclusion
The Tax Relief for American Families and Workers Act of 2024 has only made it through the House—it still has a long road ahead through the Senate. There’s a possibility that not all of the provisions described above pass. It’s also possible that nothing in the bill passes. Individual and business taxpayers should carefully consider the timing of when they file their 2023 tax returns since many of the possible items have retroactive implications to 2023. However, it’s unlikely that we’ll know anything until mid-February or even early March, resulting in a delayed tax filing season for many.
Disclaimer: This article is intended for information and discussion purposes only and should not be relied upon as tax, legal or financial advice. Each individual and business situation is unique, and application of federal, state and local rules can vary. Consult with a qualified tax professional for advice tailored to your specific circumstances.
