On January 19, 2024, the House of Representatives’ Ways and Means Committee voted to advance HR 7024 (Tax Relief for American Families and Workers Act of 2024) to the House for further vote. It’s important to note that the bill hasn’t been voted on and has not become law. However, the items included have broad Congressional and Presidential support. It would not be unlikely for this bill, or something substantially similar, to become law. And HR 7024 may impact your 2023 tax return. 

In addition, several elements of the bill are expected to be retroactive. This could result in delays in e-filing while the IRS scrambles to update their filing system. If your return might be impacted, taking a wait and see approach may make sense to avoid amending your return later if the bill becomes law.

The bill is divided into six titles:

  • Title I—Tax Relief for Working Families
  • Title II—American Innovation and Growth
  • Title III—Increasing Global Competitiveness
  • Title IV—Assistance for Disaster-Impacted Communities
  • Title V—More Affordable Housing
  • Title VI—Tax Administration and Eliminating Fraud

For income tax purposes, the more pertinent sections of the law are included in Title I, II and VI. Let’s discuss these in more detail so you know if you might be impacted.

Title I—Tax Relief for Working Families

This section will impact how the child tax credit works. If your income hasn’t been high enough to take the full child tax credit, this bill would make it easier to get a refundable child tax credit. If your income is above $150,000, you likely are not receiving a refundable child tax credit because your income tax bill allows the full credit to be used.

The proposed legislation would also allow taxpayers to choose the most advantageous method in 2024 (either current year or prior year earned income) to maximize the child tax credit.

The bill as written would also adjust the child tax credit for inflation starting in 2024 in $100 increments. Previously, we would need to wait for a Congressional act to adjust this amount which could take several years.

Title II—American Innovation and Growth

This section includes changes to business tax provisions. The first impact is for companies with research and development expenses. Beginning in 2022, R&D expenses were required to be capitalized and deducted over a period of time. This bill would retroactively undo this change (all the way back to 2022!) and allow current year expensing through 2025. Beginning in 2026, we revert to the prior rules on capitalizing and expensing over time (thanks, Congress, for kicking this can down the road again).

This section would also change the rules around deducting business interest expense to allow for additional interest deductions if the deduction was capped due to earnings limitations. This provision is also retroactive (if clients want to amend their returns) back to 2022.

And finally, Congress looks to retroactively reintroduce 100% bonus depreciation for long lived fixed assets. This allows businesses to fully deduct fixed assets in the current year instead of spreading out the deductions over several years. For 2023, we had been scheduled to dip down to 60% bonus depreciation. This update is retroactive to Jan 1, 2023, and will continue through the end of 2026.

Title VI—Tax Administration and Eliminating Fraud

The final provision we will review today is Title VI, Tax Administration. This section is aimed squarely at the Employee Retention Credit (ERC). The ERC was a COVID era tax credit that allowed certain businesses that were negatively impacted by the pandemic to receive a tax credit for keeping their employees on payroll.

Up to this point, the IRS has had relatively little resources available to examine these refund claims. And, true to form, many fly by night “tax consultants” seized the opportunity to file bogus claims on the behalf of their clients and pocket a 15% contingent fee.

The IRS is becoming wise to these schemes and has paused new claims from being paid, but not before millions of dollars in likely fraudulent claims were paid.

Congress aims to plug the dam here and close the program effective at the end of January 2024.

Summary

While this bill isn’t law yet, it does have a high likelihood of passing. So it’s worth keeping an eye on. For our clients, we’ll be keeping an eye out and alerting those that could be favorably impacted.

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