BUSINESS ARTICLES
Deal Reached On Several Bipartisan Tax Goals
A bipartisan, bicameral deal between the House Ways and Means Committee and the Senate Finance Committee that unites a number of bipartisan tax bills, including extending the child tax credit, research and development expense deductions, and disaster relief, was announced January 16, 2024.
The framework, currently being developed under the moniker The Tax Relief for American Families and Workers Act of 2024, thus far does not take any more supplemental funding given to the Internal Revenue Service under the Inflation Reduction Act and has no other new taxes, but it does significantly move forward the deadline forward for filing the Employee Retention Tax Credit and altered some of its provisions amidst the current heightened scrutiny over suspected fraud and abuse of the tax credit.
A copy of the current technical framework can be found here. The legislative language has not been released yet.
The Child Tax Credit
The framework addresses the expansion of the Child Tax Credit, a popular credit that was a part of the American Rescue Plan and expired in 2021.
This new agreement would phase in an increase to the refundable portion of the child tax credit for 2023, 2024, and 2025. For tax year 2023, the maximum refundable portion of the child tax credit would increase from the current $1,600 per child to $1,800. In 2024, it would increase to $1,900, and then $2,000 in 2025.
The agreement also changes the calculation of the refundable credit on a per-child basis from the current computation of multiplying a taxpayer’s earned income in excess of $2,500 by 15 percent to a proposed multiplying of earned income in excess of $2,500 by 15 percent and then taking that amount and multiplying it by number of qualifying children. This change would be in effect for tax years 2023, 2024, and 2025.
Additionally, the Child Tax Credit will be adjusted for inflation in 2024 and 2025 and there will be adjustments in the rules for determining earned income.
Business Provisions
Another popular provision that could finally get its extension is the that of the 100 percent bonus depreciation. The bonus depreciation expired at the end of 2022 (or the following year for longer production period property and certain aircraft) and entered a phase-down of 20 percent per calendar year. The framework will extend the bonus depreciation until the end of 2025.
The agreement also changes the period for when companies must start the five-year period for the deduction for research and experimental expenditures from beginning in 2023 to beginning in 2026.
Also extended is the allowance for depreciation, amortization, or depletion in determining the limitation on business interest and an increase in limitations on expensing depreciable business assets.
Changes To The Employee Retention Tax Credit
In an ongoing effort to combat the potential fraud perpetuated by so-called “ERC mills,” Congress would be taking a number of actions if this agreement becomes law. First, it is moving the deadline up for filing an employee retention credit claim from April 15, 2025 to January 31, 2024.
Second, it is increasing the penalty for a person who, according to the agreement “knows or has reason to know that an understatement of the tax liability of another person would result from the use of his aid, assistance, or advice” from the current $1,000 to, for fraudulent COVID-ERTC promoters, “the greater of $200,000 ($10,000 in the case of a natural person) or 75 percent of the gross income of the ERTC promoter derived (or to be derived) from providing aid, assistance, or advice with respect to a return or claim for the credit refund or a document relating to the return or claim.”
ERTC promoters would also face a $1,000 penalty in each instance for failing to do the proper due diligence to make sure the taxpayer the promoter is providing services to is actually eligible for the credit. Promoters would also be required to identify their clients upon request of the IRS.
All of the updates would be effective as of March 12, 2020, except for the requirement for promoters to file disclosures or maintain lists, which would go into effect 90 days after the law is enacted.
Other Provisions
The framework also looks to help create more affordable housing as well as update rules for communities affected by disasters, including an extension of rules for the treatment of certain disaster-related personal casualty losses and the exclusion from gross income for compensation for losses or damages resulting from certain wildfires. The framework would also exclude from gross income compensation payments made as a result of the train derailment in East Palestine, Ohio.
It also would pass the tax treaty between the United States and Taiwan.
Both Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Ways and Means Committee Chairman Jason Smith (R-Mo.) expressed interest in getting this legislation passed, with Wyden stating that it is his goal is to “get this passed in time for families and businesses to benefit in this this upcoming tax filing season, and I’m going to pull out all the stops to get that done.”
This article was originally published by CCH AnswerConnect.
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