The House passes the $79 billion tax package with overwhelming bipartisan support. This is NOT law yet. This was a House bill that passed by a bipartisan vote of 357-70 late on Wednesday, January 31. The Senate has said they will take the bill up for vote quickly. President Biden has already indicated that he plans to sign the legislation.
The Tax Relief for American Families and Workers Act of 2024 has significant impacts on businesses.
A 100% bonus would be back for qualified property placed in service after December 31, 2022, until January 1, 2026. Yes, that means the 2023 bonus deprecation would be 100% instead of the 80% it was set to decline to.
Future: Reverts to the declining schedule starting in 2026 at 20% and then 2027 at 0%.
The Section 179 deduction would increase to $1.29m in 2024 with an acquisition threshold of $3.22m
Future: Re-indexed for inflation in 2025.
Relief for the Interest Expense Limitation
Interest expense is limited to 30% of ATI (adjusted taxable income). Beginning for tax years after 12/31/2023, the calculation of ATI will once again allow for the add back of depreciation, amortization, and depletion. This will result in far fewer limitations on the interest expense deduction.
Note: There is an optional election to apply this back to tax years beginning after December 31, 2021.
Compliance Relief: 1099 Thresholds
Beginning in 2024, the Form 1099 reporting threshold would increase from $600 to $1,000. Then, after 2024, this threshold will be indexed to inflation.
Section 174 Research Expenses Immediately Deductible Again
The immediate deductibility of research expenses has been highly anticipated. This issue has had bipartisan support and has been included in many pieces of legislation that did not go anywhere, until now. Retroactive to 2022, domestic research expenses are immediately deductible.
How will businesses be able to take those 2022 research deductions when the 2022 tax returns have already been filed? There will be an option for any accounting method change that would allow all deductions for 2022 and 2023 to flow through the 2023 tax return. Alternatively, there will be an option to allow for amending the 2022 tax return.
Note: Once this legislation becomes law, the IRS will likely issue Revenue Procedures to guide as to how to implement it retroactively.
Note: Foreign research will still need to be capitalized and amortized over 15 years.
Future: This is only temporary relief as it only delays the capitalization of domestic 174 expenses to 2026 when they would once again have to be amortized over 5 years.
Employee Retention Credit
This legislation includes the deadline to submit ERC claims was January 31, 2024. The ending of this program results in significant savings for the government that almost entirely covers the cost of this tax package. H.R. 7024 also extends the statute of limitations to six years.
This Tax Bill would also create tax benefits for people impacted by natural disasters, and it would strengthen the low-income housing tax credit. As noted above, besides extending tax breaks for businesses through 2025, it also implements benefits to support trade with Taiwan.
Individual Tax Impacts
Though the proposed tax changes for individuals are small in quantity, these changes were significant in the passage of this legislation in the House. The child tax credit has been a sticking point in prior legislation that did not go anywhere – there was a strong desire to increase the credit for low-income families and that is exactly what this tax package includes.
Increased Child Tax Credit
The child tax credit would remain at $2,000 through 2023. Two significant changes to the refundable portion of the credit would allow it to have a larger impact on low-income families. The first change is that the refundable amount for 2023 would be increased from $1,600 to $1,800, then an increase of $100 each year for the next few years. The second change is that there would be a change in the formula to calculate the maximum refundable amount allowed; the formula change allows for a calculation on a per-child basis. Families with more children will see a reflective increase in the refundable portion per child. It’s important to note that only children with social security numbers can benefit from the bill.
Future: After 2023, the credit will be indexed for inflation
We will provide additional information on this tax bill as it moves through the process.