The U.S. House of Representatives on January 31 passed the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) by a vote of 357 to 70. The $78 billion bipartisan bill, crafted by Senate Finance Committee Chair Ron Wyden (D-Ore.) and House Ways and Means Committee Chair Jason Smith (R-Mo.), would revive or extend certain business tax incentives and enhance the child tax credit.
The broad bipartisan support -- 188 Democrats and 169 Republicans voted for it -- was necessary to ensure streamlined passage of the bill, because a two-thirds majority is required to suspend the typical House rules, which avoided procedural votes that have been problematic recently.
The bill now heads to the Senate, where it faces an uncertain future because of lukewarm support from Republicans, some of whom object to the expansion of the child tax credit, and Democrats concerned about the bill’s business tax provisions. Moreover, the bill could face several proposed amendments on the Senate floor. If the Senate adopts any amendments to the bill, the House would have to vote again on the bill as amended by the Senate, and the likelihood of passage at that point would diminish considerably.
The 84-page Tax Relief for American Families and Workers Act of 2024 balances the expansion of the child tax credit and other family-friendly tax provisions with a number of business-related tax measures.
As passed by the House, the bill would:
- Delay when taxpayers must begin deducting their domestic research or experimental costs over a five-year period until taxable years after December 31, 2025. Note that foreign research and experimental costs would continue to be amortized over a 15-year period.
- Ease the business interest deduction limitation by allowing adjusted taxable income to be computed by adding back deductions for depreciation, amortization, or depletion (EBITDA) for taxable years beginning after December 31, 2023, and, if elected, for taxable years beginning after December 31, 2021.
- Extend the 100% bonus depreciation for property placed in service through 2025.
As a pay-for, the employee retention credit (ERC) would be terminated as of January 31, 2024, earlier than its April 15, 2024, end date for 2020 claims and April 15, 2025, for 2021 claims. The statute of limitations period for ERC claims would be extended to six years and the time in which taxpayers could claim valid wage deductions attributable to invalid ERC claims would be extended.
Under current law, the maximum refundable child tax credit for a taxpayer is computed by multiplying that taxpayer’s earned income (in excess of $2,500) by 15%. The bill modifies the calculation of the maximum refundable credit amount by providing that taxpayers first multiply their earned income (in excess of $2,500) by 15%, and then multiply that amount by the number of qualifying children. This policy would be effective for tax years 2023, 2024, and 2025.
Outlook
With Republican objections to certain child tax credit modifications and Democratic concern over some of the business provisions, support remains in doubt. Moreover, during Senate floor consideration, the timing of which likely must take into account the Senate’s planned mid-February recess, if any amendments are adopted, the bill would return to the House for reconsideration of the bill, as amended by the Senate. Ultimately, although it appears that passage of one bill by both houses and enactment is likely, there are hurdles that must be cleared.
If a final bill does become law, because tax filing season has started, it would present challenges to the IRS in accommodating the new law in its forms and processing. While this is not new territory for the IRS, it can slow down processing of 2023 tax returns, particularly if they are impacted by a new law. If the business tax provisions included in the bill are ultimately enacted as proposed, it could open the door for a flurry of amended returns.
It is also unclear if the January 31, 2024, end date for the ERC would remain in any final bill, as that date has already passed. It is possible that a final bill would drop the accelerated end date or move it out to an after-enactment date.
Written by Todd Simmens. Copyright © 2024 BDO USA, P.C. All rights reserved. www.bdo.com
