Dissecting the Tax Relief for American Families and Workers Act of 2024
House Passes Bill That Awaits Uncertainty in the Senate
With overwhelming bipartisan support, the House of Representatives passed the Tax Relief for American Families and Workers Act of 2024, H.R. 7024, on Jan. 31, 2024. While the bill currently sits with the Senate and has not been signed into law, there are potential implications for the current tax filing season should it become law.
It’s important to note the bill contains tax law changes that would retroactively apply to 2022 and 2023. That means the completion of current tax return filings that would be impacted by these proposed changes will be held up as the process plays out. Returns will be filed this tax season, but a small window is needed to see how Congress proceeds. This extra time will ensure you receive the greatest tax benefit you are entitled to.
Will the bill pass and become law? Despite the high margin of bipartisan support in the House, it will face challenges in the Senate. Any changes made to the bill in the Senate will then have to go back to the House for approval. That does not mean House Leadership can achieve bipartisan support again. The path to getting this bill into law may be challenging, but it isn’t off the table.
Below are some of the key provisions of the Tax Relief for American Families and Workers Act of 2024 being considered by the Senate.
Proposed Individual Tax Relief
The Child Tax Credit (CTC) has the potential to help many people with children. It’s why those who plan to take the credit will want to wait to file. The bill:
- Modifies how the maximum refundable portion of the CTC is calculated to include each qualifying child for tax years 2023 through 2025
- Increases the cap on the refundable amount to $1,800 for 2023; $1,900 for 2024 and $2,000 for 2025
- Adjusts the credit for inflation for 2024 and 2025
- Allows taxpayers whose earnings decline to use their previous year’s income to calculate the maximum credit for 2024 and 2025
Proposed Business Tax Relief
While the IRS recommends filing when you’re ready and not waiting for Congress, if the following areas impact your business, you may want to consider a slight pause to see if the bill becomes law first.
- Research and Development Expenses (R&D)
- Allows businesses to immediately deduct the cost of their domestic R&D costs that were incurred in 2022 through 2025
- Allows deductions for software development expenses
- Bonus Depreciation
- The bill extends 100% bonus depreciation for qualified property placed in service in 2023 through 2025 (2026 for longer production period property and certain aircraft) and for specified plants planted or grafted in 2023 through 2025
- The provision retains 20% bonus depreciation for property placed in service during 2026 (2027 for longer production period property and certain aircraft) as well as for specified plants planted or grafted in 2026
- Increased 179 Deduction
- For property placed in service in 2024, the deduction limitation is increased to $1.29 million, and the expense limitation is increased to $3.22 million; these amounts would be adjusted for inflation in tax years beginning after 2024
- Business Interest Expense
- Allows businesses to calculate their adjusted taxable income without including deductions for depreciation, amortization and depletion for tax years 2022 through 2025
Other Provisions Contained in the Bill
These provisions don’t impact as many taxpayers but know there are proposed changes if any of the following apply to you.
- Affordable Housing
- Increases the 9% low-income housing tax credit ceiling to 12.5% for 2023 through 2025, as it was during calendar years 2018 through 2021
- Lowers the bond-financing threshold to 30% for projects financed by bonds with an issue date before 2026
- 1099-MISC and 1099-NEC Filing Thresholds
- Increases the threshold for the need to file a Form 1099-NEC or 1099-MISC by businesses paying for services performed by an independent contractor, or other similar payments, from $600 to $1,000 for payments made in 2024; an amount adjusted for inflation after 2024
- Disaster Relief
- Extends the rules for the treatment of certain disaster-related personal casualty losses
- Excludes from gross income, compensation for losses or damages resulting from certain wildfires
- Excludes from income, relief payments from the East Palestine, Ohio, train derailment
- Provides relief from potential double-taxation related to Taiwan by providing a framework for the negotiation of a tax agreement with them
The Future of the Employee Retention Tax Credit
To pay for the proposed changes above, major restrictions will be placed on the Employee Retention Tax Credit (ERTC). The bill includes the following changes:
- Ceases the filing of new claims as of January 31, 2024; currently available until April 15, 2025
- Increases the penalty on any “COVID-ERTC promoter” that assists in the understatement of a taxpayer’s liability to $200,000 for a business promoter and $10,000 for an individual or 75% of the gross income from providing the assistance, whichever is greater
- Applies new penalties on promoters for failure to comply with due diligence requirements
- Requires promoters to disclose information on any COVID-related ERTC that they assisted on
- Extends the statute of limitations for assessment for the ERTC from five years to six years
SALT Bill Sent Up for House Floor Vote
Part of the House negotiations to get this tax relief bill passed was an agreement to address raising the State and Local Tax (SALT) itemized deduction cap in a future bill. On Feb. 1, 2024, the House Rules Committee advanced a SALT bill to a full house vote (a vote has not been scheduled as of Feb. 5, 2024). The legislation would raise the cap to $20,000 for joint filers who make under $500,000 a year for the 2023 tax year.
The SALT legislation still faces a difficult path to passage as both Republicans and Democrats have expressed opposition.
What Do You Need to Do Now?
Many of the proposed provisions included above may retroactively affect your 2023 return when it ultimately gets filed. Watch the news for its progression through the legislature while you continue gathering all necessary information needed for your 2023 tax return now. Don’t wait for action to be taken on this bill first, and contact your tax advisor as soon as possible to discuss your individual situation and to get your return started.
Navigating the intricacies of new tax laws and how they affect you can be challenging, but with the right guidance and understanding, you can make informed decisions to optimize your tax position. Tax services are not just about keeping in compliance with filing requirements; they are also about leveraging opportunities. An experienced tax advisor can help understand the new rules and how to use them to your advantage.
A proactive approach to dealing with new tax laws can yield significant benefits.