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What’s Inside the Tax Relief for American Families and Workers Act of 2024?

January 23, 2024

Attention taxpayers…there is a wide-ranging tax bill in the works with proposed changes to the employee retention credit, research and experimental costs, the child tax credit, bonus depreciation and more. Here’s a look inside what could potentially be on the horizon.

The House Ways and Means Committee has recently approved The Tax Relief for American Families and Workers Act of 2024. The bill now advances through Congress. What changes could be on the horizon? We explore five major proposals here.

PROPOSED Employee Retention Credit (ERC) deadline change- Check out our ERC Insights for more information on the ERC and claiming the credit. The existing deadline to submit claims for the ERC is April 15, 2024, for claims related to 2020 and April 15, 2025, for claims related to 2021. If signed into law the proposed tax package would shorten the deadline to file all ERC claims to January 31, 2024.

PROPOSED Expanded Child Tax Credit- Under current law, if you have children under age 17 at the end of a calendar year, you are eligible for a tax credit of up to $2,000 per dependent child claimed on your return. Up to $1,600 of that total can be refundable. For a taxpayer with one or two children, the refundable portion is capped at the lower of either the child tax credit amount based on qualifying children or 15% of the earned income exceeding $2,500. For those with three or more children, the refundable portion is capped at the lower of either the child tax credit amount based on qualifying children or the greater of (a) the excess of Social Security taxes over earned income credit or (b) 15% of earned income exceeding $2,500.

The Act proposes expanding and extending the refundable child tax credit for tax years 2023, 2024 and 2025. If passed, the calculation of the refundable portion of the child tax credit would be determined on a per-child basis.

Earned income greater than $2,500 x 15% x number of children = total refundable amount

The Act also proposes an increase in the max amount of the refundable portion of the credit:

2023: $1,800

2024: $1,900

2025: $2,000

PROPOSED Restoration of R&E tax deduction- Under section 174, beginning January 1, 2022, the Tax Cuts and Jobs Act (TCJA) eliminates the option to immediately deduct US-based R&E expenditures.

Instead, it requires they be charged to a capital account and amortized over 5 years, beginning with the midpoint of the tax year in which the expenditures are paid or incurred. For foreign research, the amortization period extends to 15 tax years.

The proposal calls for a delay in this rule to tax years beginning after December 31, 2025, for domestic R&E activities. Foreign R&E activities would still be subject to capitalization and amortization over 15 years.

PROPOSED Increased Business interest deduction limitation- In tax years beginning before 2022, taxpayers calculated adjusted taxable income for purposes of the business interest expense limitation under Section 163(j) using the EBITDA (earnings before interest, taxes, depreciation and amortization) calculation. After 2021, depreciation and amortization were removed from the calculation, leaving an allowable addback to adjusted taxable income of interest and taxes only.

If passed, the Act would increase the deduction for many taxpayers as the calculation would revert back to an amount based on EBITDA. This change would be applicable for tax years beginning after December 31, 2023, and before January 1, 2026. The Act would also allow taxpayers to elect to restore depreciation and amortization to the calculation for tax years beginning after 2021 and before 2024.

PROPOSED Extended 100% bonus depreciation- With bonus depreciation, companies can deduct the full cost of certain new and used capital expenditures in the year they’re placed in service. This break isn’t subject to any spending limits or income-based phaseout thresholds. It applies to qualifying property placed in service after September 27, 2017, and before January 1, 2023. Under current law, starting in 2023 the allowable deduction decreases to 80%. In 2024 it drops again to 60%, in 2025 to 40%, in 2026 to 20% and in 2027 to 0%.

The Act proposes extending 100% bonus depreciation for qualified property placed in service after December 31, 2022, and before January 1, 2026 (January 1, 2027, for certain aircraft and longer production period property).

What other changes are PROPOSED?

Additionally, the proposed bill includes the following potential changes:

  • Hefty penalties imposed on tax advisors and consultants who helped employers file erroneous claims for the ERC. If passed, the penalty would be the greater of $200,000 or 75% of the revenue received from helping file the false claim.
  • Increased due diligence requirements for tax preparers
  • Extended recordkeeping requirements to advisors of abusive tax transactions to ERC promoters
  • Eliminates double taxation on U.S.- Taiwan cross border investments
  • Restores the low-income housing tax credit to 12.5% (from 9%)
  • Increases the $600 threshold for filing a Form 1099-NEC for non-corporate vendors providing services to $1,000

We will keep you posted if/when the Act is signed into law.

Questions in the meantime? We can help.

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