Addendum: On Jan. 31, 2024, the Tax Relief for American Families and Workers Act of 2024 passed the House and heads to the Senate.
On Jan. 16, 2024, the United States Senate Committee on Finance and the United States House Committee on Ways and Means announced a bipartisan tax bill called the Tax Relief for American Families and Workers Act of 2024 (the Bill). Among many other provisions meant to provide potential tax breaks for American families and businesses, the legislation could also restore three Tax Cuts and Jobs Act (TCJA) provisions that are expired: Research and Development (R&D) full expensing, with no capitalization required; Section 163(j) returning to 30 percent EBITDA; and 100 percent bonus depreciation.
The bipartisan legislation aims to tackle a wide range of issues through targeted tax breaks and reforms. We’ve provided a high-level summary on various items in the Bill:
Strengthen Working Families
- Enhanced Child Tax Credit: The Bill proposes a phased increase in the refundable portion of the Child Tax Credit, reaching $1,800 per child in 2023, $1,900 in 2024, and finally $2,000 in 2025. The Bill also would adjust the value for inflation for the 2024 and 2025 tax years.
- One-Year Income Lookback: The bill offers flexibility by allowing taxpayers to use either their current or prior-year earned income to calculate the Child Tax Credit in 2024 and 2025. This one-year lookback helps account for income fluctuations and ensures families facing temporary setbacks don’t lose critical support.
- Disaster Relief: The Bill extends the rules for qualified disaster-related personal casualty losses and eliminates the requirement that such casualty losses must exceed 10 percent of adjusted gross income (AGI) to qualify for the deduction. The losses must exceed $500 per casualty, and taxpayers may claim the casualty loss deduction without the need to itemize.
Fuel American Innovation and Growth:
- R&D Tax Deduction: The Bill aims to incentivize R&D by extending the deduction for domestic R&D expenses. Taxpayers would be able to retroactively delay when they are required to capitalize domestic R&D costs over a five-year period until tax years beginning after Dec. 31, 2025. The legislation does not change the current fifteen-year capitalization and amortization of non-U.S. based research activities.
- Bonus Depreciation: The bill extends 100 percent bonus depreciation for certain business property, after Dec. 31, 2022, and before Jan. 1, 2026 (or Jan. 1, 2027, for longer production period property), allowing companies to write off the cost of equipment and other assets more quickly.
- Sec 163(j) Interest Expense Limitation: The Bill retroactively extends the increased limitation of business interest expense by allowing depreciation and amortization deductions in the computation of adjusted taxable income through 2025. The provision for 2022 and 2023 is elective.
Level the Global Playing Field:
- U.S. and Taiwan: The Bill addresses the issue of double taxation on U.S.-Taiwan cross-border investment, and creates a new Section 894A of the Internal Revenue Code (IRC). By offering targeted tax relief, it aims to make U.S. investments in Taiwan more attractive, boosting trade and economic cooperation between the two nations.
Build a Stronger Foundation:
- Affordable Housing: The Bill seeks to address the growing housing affordability crisis by offering tax incentives for developers who build affordable housing units. Along with reducing tax-exempt bond financing requirements, the Bill would also restore the Low-Income Housing Tax Credit ceiling to nine percent for calendar years 2023 through 2025.
Address and Eliminate Fraud
- Increase Information Reporting Threshold: The Bill would increase the threshold for information reporting on Form 1099-NEC and 1099-MISC from $600 to $1,000, adjusted for inflation. In addition, the requirement would be based on payments during the calendar year as opposed to the taxable year.
- Employee Retention Credit (ERC): The Bill would establish an early deadline for filing all ERC claims by Jan. 31, 2024. The Bill would also increase certain penalties for aiding and abetting any ERC “promoters.”
While the “Families and Workers Act of 2024” is still under consideration, its potential impact is significant, offering a comprehensive approach to addressing a range of challenges faced by American families, businesses and communities. However, it’s crucial to note that this is simply a snapshot of the proposed legislation, and its final form may differ depending on ongoing discussions and amendments. With the 2023 tax season officially beginning in late January, Congress may be anxious to push this Bill through as quickly as possible.
Windham Brannon’s Tax Practice is prepared to answer any questions you may have about the Bill’s potential impact to you and your business. We also plan to monitor the Bill’s progress and provide any relevant updates accordingly. For more information, reach out to your Windham Brannon advisor today, or contact Nicole Suk.
