On January 31, the House of Representatives overwhelmingly passed the Tax Relief for American Families and Workers Act of 2024, a tax package worth $78 billion. The bill was approved with bipartisan support and will temporarily expand the Child Tax Credit and restore several business tax benefits. This package aims to offer tax relief to millions of families nationwide.
Enhanced Child Tax Credit
The proposed Child Tax Credit provides a tax break for qualifying households with children and can be claimed even by families who do not typically file a return. Currently, the credit is $2,000 per child, but the maximum refundable amount of that credit is $1,600. Under the new legislation, the refundable amount will increase to $1,800 for tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025. The maximum limit will also increase with inflation.
Low-income families with more than one child will receive the same credit for each child, as higher-income households already do. Additionally, families can choose to use their earnings in the current year or the prior year in case their income is volatile.
The legislation allows households who do not owe income taxes to receive the full refundable value of the Child Tax Credit so long as they earn at least $2,500. According to the Internal Revenue Service, children with a Social Security number and who are under the age of 17 by the end of the calendar year are eligible for the credit.
Tax Relief to Businesses
As part of the deal, several business tax benefits originally included in the 2017 Tax Cuts and Jobs Act have been temporarily restored. These benefits had either expired or begun to phase out, and their restoration is expected to provide relief to businesses impacted by their expiration.
Businesses of all sizes will be able to immediately deduct domestic research and experimental expenditures for the 2022 – 2025 tax years. Previously, the Tax Cuts and Jobs Act (TCJA) required companies to capitalize these amounts and amortize over a 5-year period, beginning with the 2022 tax year. Additionally, full and immediate expensing for machinery, equipment, and vehicle investments will be restored, and the amount of investment that small businesses can immediately write off will be increased to $1.29 million.
The bill also addresses the treatment of business interest expense and bonus depreciation. Bonus depreciation has begun its phaseout period, with only 80% of eligible fixed asset purchase cost deductible if the assets were placed in service in 2023. The bill would restore 100% bonus depreciation for qualified property through 2025. In addition, it tackles fraud in the Employee Retention Tax Credit program by accelerating the deadline for filing backdated claims to January 31, 2024, instead of April 15, 2025. Furthermore, it increases penalties for fraudulent promoters of the Employee Retention Tax Credit and any businesses that have taken this credit improperly, which will help offset the cost of this $78 billion tax bill.
Outlook
The bipartisan tax package now moves to the Senate, where it faces an uncertain future. No specific date has been set for a vote on the bill yet.
With the bill potentially changing individual and business tax benefits that apply to the 2023 tax year, many are wondering if they should hold off on filing their taxes. The IRS advised that individual tax filers should not hesitate to file their tax returns, and eligible taxpayers will not have to file amended returns to claim the enhanced child tax credit included in the bill. However, business taxpayers and individual taxpayers impacted by the business provisions who would be significantly affected by the potential changes may wish to follow how the bill fares in the Senate before filing—at least for now.
Nicholas L. Shires, CPA, is the partner-in-charge of tax services at Dannible & McKee, LLP, a public accounting firm headquartered in Syracuse, New York. For more information on this topic feel free to contact Nick at (315) 472-9127 or nshires@dmcpas.com. To find out more about Dannible & McKee, visit www.dmcpas.com.