On January 19, 2024, the Ways and Means Committee of the House of Representatives successfully propelled HR 7024 forward, known as the “Tax Relief for American Families and Workers Act of 2024.” The bill is the outcome of an agreement established earlier that week between the Ways and Means Committee’s Chairman Smith and the Senate Finance Committee’s Chairman Wyden.

It is important to know that the bill is not yet law and still needs to be passed by both the House and Senate – and then signed into law by the President. If this bill does eventually become law, it is also possible the contents and subject matter of the bill change.

As currently drafted, the bipartisan tax bill would impact many key individual and business provisions, discussed below.

Individual Tax Proposals

The Child Tax Credit

• Arguably the foundation of this tax bill is an increase in the child tax. Currently, the child tax credit is worth up to $2,000 per qualifying dependent under the age of 17. The credit amount decreases if your modified adjusted gross income exceeds $400,000 (married filing jointly) or $200,000 (all other filers).
• Additionally, for tax years not beginning in 2021, a portion of the child tax credit is refundable. Specifically, the maximum reimbursable child tax credit is limited by a set monetary amount per child, which is currently set at $1,600 per child (inflation adjusted), as per the existing law.
• This bill increases the cap on the refundable Child Tax Credit, increasing it to $1,800 for 2023, $1,900 for 2024, and $2,000 for 2025, with adjustments for inflation in the latter two years.
• This bill also raises the overall credit consistent with inflation. Specifically, the amount of the child tax credit (currently $2,000) would be indexed to inflation for the years 2024 and 2025:
• Use of Previous Year’s Income: Taxpayers can choose to calculate the credit using the previous year’s earned income if it’s higher than the current year’s, for the years 2024 and 2025.
• IRS Actions for Early Filers: For early filers in 2023, the IRS is tasked with recalculating refunds based on these changes as quickly as possible and issuing any additional refunds owed to taxpayers

Tax Treatment of Certain Disaster-Related Events

• The proposed legislation continues the special tax relief measures introduced in the Taxpayer Certainty and Disaster Tax Relief Act of 2020 for individuals affected by qualified disasters.
• Disaster-Related Losses: The bill extends provisions that simplify claiming deductions for qualified disaster-related personal casualty losses. Notably, it removes the requirement for casualty losses to exceed 10% of AGI, sets a $500 threshold per casualty, and allows for the deduction to be claimed above the line without needing to itemize.
  • Under the existing statutes, taxpayers who sustain personal casualty losses due to a disaster officially recognized by the federal government can only claim these losses if they surpass 10% of their AGI, unless specific disasters are designated as qualified by separate congressional acts. The proposed bill seeks to standardize the treatment for all federally-declared major disasters, which would include any area proclaimed as a major disaster by the President from January 1, 2020, and extending 60 days following the enactment of this bill, as long as the disaster itself commenced between December 28, 2019, and the official date the bill is passed, according to the disaster incident periods identified by FEMA.
• Wildfire Compensation Exclusion: Another significant provision is the exclusion from gross income of any qualified wildfire relief payment received. This applies to payments for expenses, damages, or losses from a wildfire disaster, not covered by insurance, with a caveat to prevent double benefits. This exclusion is applicable for payments received between December 31, 2019, to January 1, 2026.

Reporting Threshold Changes for Forms 1099-NEC and 1099-MISC

• The proposed legislation raises the threshold for information reporting on tax forms used for independent contractors and miscellaneous income.
• Specifically, the bill increases the information reporting threshold on Forms 1099-NEC and 1099-MISC from $600 to $1,000, with an inflation adjustment set to begin after Additionally, the threshold will now be based on the calendar year rather than the taxable year, and this change takes effect for payments made after December 31, 2023.

Business Tax Proposals

Amortization of Research and Development (R&D) Expenditures

• The pending legislation proposes to update the Internal Revenue Code by delaying the mandate to amortize research and experimental expenditures until after 2025, allowing for immediate deductions in the interim.
• The bill introduces a new Section 174A, enabling the immediate deduction of domestic research and experimental expenses for the tax years preceding January 1, 2026, thus postponing the start of the amortization requirement set by Section 174 until after December 31, 2025.
• Transitional provisions include a one-year window post-enactment for taxpayers to make certain elections for the treatment of these expenditures, like opting for a 10-year write-off or adjusting the research credit, via amended returns.

Adjusted Taxable Income Changes for Business Interest Expense Limitations

• The Tax Cuts and Jobs Act’s (TCJA) initially excluded depreciation, amortization, and depletion deductions when calculating adjustable taxable income (ATI). However, it was set to include these deductions after December 31, The new Act proposes delaying this inclusion until tax years commencing after December 31, 2025.
• Taxpayers would have the option to apply the change to tax years starting after December 31, 2021, which could potentially increase interest deductions for the 2022 and 2023 tax years. This election must be made following IRS guidelines.

Extension of 100 Percent Bonus Depreciation

• The legislation proposes to extend the period for businesses to take advantage of 100% bonus depreciation for qualifying assets. Currently, there is a phase down of 100% bonus depreciation that went into effect for most property in 2023. This would be reversed, suspended, and 100% bonus depreciation would continue to be available for qualified property placed in service after December 31, 2022, and before January 1, 2026 (or January 1, 2027, for property with longer production periods and certain aircraft), including specified plants planted or grafted within the same
• A 20% bonus depreciation rate would apply to property placed in service post-2025 until the end of 2026 (or end of 2027 for longer production period property and certain aircraft), as well as specified plants planted or grafted after December 31, 2025, and before January 1, 2027.

Increase in Section 179 Expensing

• The legislation proposes to raise the cap on the expensing of qualifying property from $1 million to $1.29 million, while also increasing the expenditure ceiling from $2.5 million to $3.22 million, beyond which this benefit begins to phase out. These new amounts would be further adjusted for inflation starting in tax years after 2024, with the updated expensing limits applying to assets placed in service in tax years beginning after December 31, 2023.

Increase in Penalties with Respect to COVID-Related Employee Retention Tax Credit (ERTC)

• The Act aims to strengthen the penalties and due diligence requirements for promoters of the COVID-related Employee Retention Tax Credit (ERTC).
• The law enhances penalties for those aiding in the understatement of tax liability related to the ERTC, with fines of up to $200,000 or 75% of the promoter’s gross income derived from such services.
• ERTC promoters must adhere to due diligence requirements like those for tax return preparers, facing a $1,000 penalty per infraction. Additionally, they are required to disclose client lists and transaction details to the IRS and are subject to an extended statute of limitations period for

Conclusion

At the time of this writing, it is unclear whether the proposed legislation has enough support to pass both chambers of Congress as currently proposed. However, after an overwhelming vote to advance the legislation out of the House Ways and Means Committee, supporters of the legislation appear to be optimistic.

Please reach out to your Topel Forman advisor if you have any questions about the Tax Relief for American Families and Workers Act of 2024.