Mar 255 min read

The Tax Relief for American Families and Workers Act of 2024 - What’s in it and Where it Stands

By Jeffrey T. Rogers, CPA, MST | Tax Partner, E.J. Callahan & Associates

Many pass-through entities recently placed their 2023 tax returns on extension as a result of a tax bill that is currently in Congress. On January 31st, 2024, the Tax Relief for American Families and Workers Act of 2024 passed through the House of Representatives by a resounding 357-70 vote. With clear bipartisan support, it seemed just a matter of time before the bill would be passed into law. However, in recent weeks, the bill has stalled in the Senate with disagreements surrounding a key provision that had been added to the Child Tax Credit contributing to the hold up. In recent days, in particular at a March 21st Finance Committee meeting, an offer to withdraw the provision in question has been made as a means of negotiation. However, since the provision was included in the original bill, its removal will require that the bill be returned to the House which will lead to further delays. Some analysts feel the bill is at significant risk of not passing at all but we at EJC prefer to be optimistic, especially with such favorable tax provisions at stake.

What is in the bill ?

As currently constituted, the bill contains the following provisions, many of which are retroactive to the beginning of 2022:

Restoration of 100% Section 168(k) bonus depreciation retroactive to 2023

As part of the Tax Cuts and Jobs Act (“TCJA”), which passed in late 2017, businesses were permitted to write off the full cost of qualified capital assets in the year placed in service. The 100% first year write off was only effective through 2022. Beginning in 2023, the first year write off is capped at 80% of the cost with every subsequent year seeing an additional 20% reduction until phased out in 2027.

Increase the Section 179 expensing limitation from $1.16 million to $1.29 million

Not to be confused with bonus depreciation, though very similar in nature, businesses are able to write off the full cost of qualified assets during the year placed in service. In addition to the limit on the amount of Section 179 that may be claimed, which is subject to the same limitation at the owner level, a few additional limitations exist that need not be considered within the realm of bonus depreciation. However several states, Massachusetts among them, will permit Section 179 expense to be claimed but not bonus depreciation so understanding the difference is important.

Modification to Section 163(j) Business interest expense limitation calculation

One of the objectives of the TCJA was for businesses to reduce their reliance on debt to fund operations. In an attempt to accomplish this, unless a small business exception could be met or certain elections made, section 163(j) of the Internal Revenue Code was expanded to require most company’s interest expense deduction to be limited to 30% of their adjusted taxable income. Any excess interest expense could be carried forward to a future tax year. Many companies were able to avoid a deduction limitation through 2021 as the adjusted taxable income figure was determined prior to a reduction for tax depreciation and amortization expense. The calculation changed in 2022, as scheduled under the TCJA, such that adjusted taxable income became post-depreciation and amortization expense. While the Tax Relief for American Families and Workers Act of 2024 is not attempting to eliminate the Section 163(j) interest expense limitation, the calculation would return to its pre-2022 form.

Expansion of the Child Tax Credit

The currently enacted Child Tax Credit provides families with up to $2,000 per child under the age of 17 and contains a non-refundable component (i.e.; only available to offset actual tax liability) and a refundable component (i.e.; available for refund when in excess of tax liability). The bill is looking to accomplish three objectives: (1) The refundable portion of the credit would be adjusted annually for inflation, (2) the maximum refundable portion would be determined by the number of qualified children and (3) allow for a prior year income lookback to determine refundable credit eligibility. It is the latter provision that is creating the pushback referenced in the opening paragraph.

Repeal of the Section 174 requirement to amortize R & E expenditures

Historically, Section 174 of the Internal Revenue Code has permitted an immediate deduction of research & experimentation expenses. However, as part of the TCJA, Section 174 was amended and, beginning in 2022, the ability to deduct was changed to a requirement to capitalize and amortize domestic research & experimentation expenses over 5 years, 15 years for international R&E expenses. The capitalization requirement went into effect regardless of whether a company claimed the Section 41 Research & Development tax credit and led to several small and mid-sized businesses having significantly higher tax bills in 2022 than they had seen previously. As a result, the reversion of this particular provision (for domestic research & experimentation expenses only) may be the most popular aspect of the tax bill for small and midsized businesses.

Early end to Employee Retention Credit claims and increased penalties for fraudulent claims

As a means of paying for the above-referenced taxpayer-positive changes, Employee Retention Credit claims would cease to be accepted effective January 31, 2024, a date that has already passed. Businesses with legitimate claims for refunds related to calendar year 2020 activity originally had until April 15, 2024 to submit their claims while those that qualified under the looser 2021 rules would have had until April 15, 2025. If this bill is passed in its current form, no further ERC-related amended payroll returns will be accepted. In addition, significant penalties would be imposed on ERC-promoters, as well as an extension of the statute of limitation for the IRS to review questionable claims.

Other areas of potential interest include increases to the 1099-NEC and 1099-MISC reporting thresholds and changes to the low-income housing credit

With so many favorable tax provisions in play, EJC is actively monitoring the progression of the bill with hopes of delivering positive news to clients and friends in the near future. Should you have questions with anything contained in the bill and how it may impact your personal or business tax situation, feel free to reach out to an EJC partner.

About the Author:

Jeffrey T. Rogers, CPA, MST

Partner | E.J. Callahan & Associates

Jeff has over 18 years of experience specializing in tax planning, tax research & compliance, IRS & State Exam Representation, Mergers & Acquisitions, and Business succession & ownership transitions with a focus in the construction, real estate, non-profit, restaurant, manufacturing & distribution industries. He helps businesses adopt the most tax efficient accounting methods available to them and identifies all tax credit and incentives to which they may be entitled. Jeff has presented for multiple trade associations, Chambers of Commerce, and at other business events. He has been published in the Boston Business Journal and the Cape & Plymouth Times. Prior to joining E.J. Callahan & Associates, Jeff served as both a Partner and Director at regional and national CPA firms. He holds a Bachelor of Science Degree in Accounting from Merrimack College and a Master of Science degree in Taxation from Bentley University. Jeff is an active member of the American Institute of Certified Public Accountants (AICPA), the Massachusetts Society of Certified Public Accountants (MSCPA), and the Construction Financial Management Association (CFMA). Jeff is also Treasurer for the Danvers American Little League and a volunteer coach in several youth sports programs.

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