Summary of the Tax Relief for American Families & Workers Act of 2024

February 2, 2024

On Wednesday, January 31, the US House of Representatives passed the Tax Relief for American Families and Workers Act by a vote of 357-70. As summarized below, this Bill includes several significant tax benefits for both families and businesses. Importantly, some of these provisions are effective retroactively to prior tax years, including 2023, and, if enacted, would impact the filing of income tax returns for 2023.

The Bill will now go the Senate where its fate is uncertain. While Senate Democrats are working to pass the package, there is concern among Senate Republicans over the cost the higher child tax credits in the Bill. In addition, there is an issue regarding the State And Local Tax (“SALT”) deduction limit under current law. A bipartisan SALT Caucus, which included lawmakers from states with high taxes, is pushing to raise the SALT deduction limit from $10,000 to $20,000. To appease this Caucus, the House has made a commitment to have a separate vote on SALT relief. In addition to these potential political obstacles, there are practical tax compliance considerations since the IRS has already opened the tax filing season for 2023 returns and the retroactive provisions in this Bill could affect a considerable number of returns.

We will continue to monitor this and other major tax proposals and provide timely updates.

Summary

Here is a summary of the pertinent provisions included in the Tax Relief for American Families and Workers Act of 2024 approved by the House on January 31:

Business tax provisions

Current expensing of domestic research expenses: The framework agreement would allow taxpayers to deduct currently domestic research or experimental costs that are paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2026. Research or experimental costs that are attributable to research that is conducted outside of the United States would continue to be deducted over a 15-year period.

There is currently no guidance regarding how to claim the deduction in an applicable tax year for which a return has been filed. This will likely require filing an amended return.

Favorable calculation interest deductions limitation: The framework agreement would extend the application of interest deductions without regard to any deduction allowable for depreciation, amortization, or depletion (i.e., earnings before interest, taxes, depreciation, and amortization (EBITDA)) to tax years beginning after December 31, 2023 (and, if elected, for tax years beginning after December 31, 2021), and before January 1, 2026.
Extension of 100% bonus depreciation: The framework agreement would extend 100% bonus depreciation for qualified property placed in service after December 31, 2022, and before January 1, 2026 (January 1, 2027, for longer production period property and certain aircraft) and for specified plants planted or grafted after December 31, 2022, and before January 1, 2026. The agreement would retain 20% bonus depreciation for property placed in service after December 31, 2025, and before January 1, 2027 (after December 31, 2026, and before January 1, 2028, for longer production period property and certain aircraft), as well as for specified plants planted or grafted after December 31, 2025, and before January 1, 2027.
Increased Section 179 expense deduction: The agreement increases the Section 179 deduction limit to $1.29 million, reduced by the amount by which the cost of acquired assets exceeds $3.22 million. Both amounts are adjusted for inflection for taxable years beginning in 2024.

Individual tax provision

Increased Child Tax Credit: The bill would modify how the refundable portion of the credit is calculated to include each qualifying child for 2023, 2024 and 2025. The amount of the credit would be increased from $2,000 to $2,100 per child in 2024 and 2025. It would also increase the amount of that tax credit that is "refundable," or available as a cash payment to those who don't owe taxes.

The refundable portion would rise by $200 to $1,800 per child for the 2023 tax year, $1,900 in 2024 and $2,000 in 2025. The credit will be adjusted for inflation in 2024 and 2025.

This expansion would expire in 2026.

Miscellaneous provisions

Low-income housing: Restore the 12.5% increase to the 9% low-income housing tax credit’s ceiling on annual allocations for calendar years 2023 through 2025, allowing states to allot more credits to developers of affordable rental housing. Lower the threshold for a project to receive a 4% low-income housing tax credit; option would apply if 30% or more of the building and land are financed by tax-exempt private activity bonds, down from the existing 50% threshold.
1099-NEC and 1099-MISC reporting: Generally increase the reporting threshold on 1099-NECand 1099-MISC forms to at least $1,000, from $600, for business payments for services performed by an independent contractor beginning in calendar year 2024

Adjust the reporting threshold for inflation beginning in 2025.

Funding provided by accelerated elimination of the Employee Retention Credit

The funding for a significant portion of the framework costs would come from eliminating the ability to make an Employee Retention Credit claim after January 31, 2024.

Under current rules, a business that qualifies for the ERC can make a claim (1) until April 15, 2024, for qualified wages paid between March 13 and December 31, 2020, and (2) until April 15, 2025, for qualified wages paid between January 1, 2021, and
September 30, 2021.

The current version of the proposed tax bill would require all claims for the ERC (for qualified wages paid in 2020 or 2021) to be filed on or before January 31, 2024, meaning that for taxpayers who have not yet filed claims there is practically no time to do so. Even if the bill is amended by the House and Senate and the deadline changes, considering the ongoing skepticism and scrutiny of ERC claims, it would not be surprising if the final tax package includes some type of an accelerated ERC deadline.
Therefore, taxpayers who are considering a submitting a claim for the ERC should act quickly to gather relevant information and submit carefully prepared claims.

Please refer to our prior blog articles - ERC Moratorium and ERC Voluntary Disclosure Program – for the latest news regarding ERC claims.

Conclusion

The Tax Relief for American Families and Workers Act is a significant piece of tax legislation and due to the retroactive provisions in the Bill would have major implications for many taxpayers and, importantly, the filing of tax returns for 2023. If the Bill passes the IRS will need to rapidly rework and update the federal tax system before 2023 tax returns can be accepted. As a result, it is possible there could be delays in the filing due dates and more tax compliance compression.

Currently, it appears the best thing to do is to be patient and keep abreast of any future developments. We will closely monitor this Bill and provide timely updates when necessary.

For further clarification or inquiries regarding this article, please contact your Herbein tax advisor.

To learn more about tax relief services click here.

Article Contributed by Barry Groebel.