House Passes $78 Billion Bipartisan Tax Relief Bill; Separate SALT Relief Bill Introduced

(Parker Tax Publishing February 2024)

On January 31, the House of Representatives passed the bipartisan Tax Relief for American Families Workers Act of 2024 by a vote of 357-70. The bill expands the child tax credit, restores the immediate deduction of specified research or experimental expenditures, reinstates the 100 percent bonus depreciation deduction, and increases the limits on expensing depreciable business assets, while also accelerating the deadline for filing employee retention credit claims from April 15, 2025, to January 31, 2024. In addition, a separate bill was introduced, the SALT Marriage Penalty Elimination Act, that would raise the limit on the state and local tax (SALT) deduction for 2023 from $10,000 to $20,000 for married taxpayers filing joint returns with adjusted gross income under $500,000. H.R. 7024; H.R. 7160.

Observation: Despite passing the House with strong bipartisan support, ultimate passage of the Tax Relief for American Families Workers Act of 2024 (H.R. 7024) remains far from certain. Its outlook is brighter, however, than the one for the SALT Marriage Penalty Elimination Act (H.R. 7160), which may not even have the support to advance to the Senate (where it would face a steep uphill climb).

Tax Relief for American Families Workers Act of 2024 (H.R. 7024)

The version of H.R. 7024 that passed the House is identical to the one originally introduced (discussed in the previous issue of Parker's Federal Tax Bulletin), except for changes in two areas:

(1) the addition of a provision that ensures eligible taxpayers receive the benefit of the expanded child tax credit, even if they do not take the new rules into account when filing their 2023 tax return (eliminating the need for eligible taxpayers to file an amended return); and

(2) several technical adjustments to the ERTC promoter enforcement provisions, as discussed in JCX-4-24.

A summary of the key provisions of H.R. 7024 follows. For a more detailed discussion, see the January 19, 2024 issue of Parker's Federal Tax Bulletin (PFTB 2024-01-19).

Restoring Full and Immediate Expensing of Domestic Research or Experimental Expenditures: The bill suspends the requirement under Code Sec. 174 that domestic research or experimental expenditures must be capitalized and amortized ratably over a 5-year period. Instead, for tax years beginning after December 31, 2021, and before January 1, 2026, a taxpayer may (1) deduct domestic research or experimental expenditures, (2) elect to capitalize domestic research or experimental expenditures and recover them ratably over the useful life of the research (but in no case over a period of less than 60 months), or (3) elect to capitalize domestic research or experimental expenditures to a capital account. Under the bill, domestic research or experimental expenditures include software development costs. Research or experimental expenditures attributable to research conducted outside the United States must continue to be capitalized and amortized over 15 years. The bill also requires a taxpayer to reduce the amount it takes into account as research or experimental expenditures (whether expensed or capitalized) by the amount of the research credit allowable under Code Sec. 41 for tax years beginning after December 31, 2022.

Extension of Allowance for Depreciation, Amortization, or Depletion in Determining the Limitation on Business Interest: For purposes of the Code Sec. 163(j) business interest deduction limitation, which generally limits the deduction for business interest expenses to 30 percent of a taxpayer's adjusted taxable income (ATI)), the bill provides that ATI is computed without regard to the deduction for depreciation, amortization, or depletion for tax years beginning before January 1, 2026.

Extension of 100-percent Bonus Depreciation For Years 2023 Through 2025: The bill extends the allowance of a 100-percent bonus depreciation deduction for property placed in service after December 31, 2022, and before January 1, 2026 (January 1, 2027, for longer production period property and certain aircraft), as well as for specified plants planted or grafted after December 31, 2022, and before January 1, 2026. The bill retains the present law 20-percent bonus depreciation deduction that is allowed for property placed in service after December 31, 2025, and before January 1, 2027 (after December 31, 2026, and before January 1, 2028, for longer production period property and certain aircraft), as well as for specified plants planted or grafted after December 31, 2025, and before January 1, 2027.

Increasing the Limits on Expensing Depreciable Business Assets: The bill increases the maximum amount a taxpayer may expense under Code Sec. 179 to $1,290,000 and increases the phaseout threshold amount to $3,220,000. Under the bill, the maximum amount a taxpayer may expense for tax years beginning after 2023 is $1,290,000 of the cost of Section 179 property placed in service for the tax year. The $1,290,000 amount is reduced (but not below zero) by the amount by which the cost of Section 179 property placed in service during the tax year exceeds $3,220,000. The $1,290,000 and $3,220,000 amounts are indexed for inflation for tax years beginning after 2024.

Expansion of the Child Tax Credit: The bill temporarily expands the child tax credit (CTC) for years 2023 through 2025 by modifying the per-child calculation of the credit and increasing the maximum amount of the additional child tax credit per qualifying child to $1,800 for 2023, $1,900 for 2024, and $2,000 for 2025. In addition, the $2,000 amount of the child tax credit is temporarily indexed for inflation beginning in 2024, and the maximum amount of the additional child tax credit per qualifying child is also temporarily indexed for inflation, but only in 2025 and, as a result, matches the amount of the child tax credit for that year.

Observation: After its introduction, H.R. 7024 was amended to add a provision that ensures eligible taxpayers receive the benefit of the expanded child tax credit, even if they do not take the new rules into account when filing their 2023 tax return. Specifically, the bill provides that if a taxpayer claims the child tax credit on his or her 2023 tax return without regard to the provisions of H.R. 7024, the IRS is directed to (1) redetermine the amount of the credit on the basis of the information provided by the taxpayer on the return, and (2) issue a credit or refund to the taxpayer if the redetermination results in an overpayment of tax. Thus, eligible taxpayers will not need to file an amended return to gain the benefits of the expanded child tax credit.

Increasing the Threshold for Form 1099 Reporting: The bill changes the information reporting threshold for certain payments to persons engaged in a trade or business and payments of remuneration for services and direct sales from $600 to $1,000 in a calendar year, with the threshold amount to be indexed annually for inflation in calendar years after 2024. This provision applies with respect to payments made after December 31, 2023.

Enforcement Provisions With Respect to the Employee Retention Credit: The bill provides that no credit or refund of the employee retention tax credit (ERTC) will be allowed or made after January 31, 2024, unless the claim is filed on or before that date. Previously, the deadline for filing employee retention credit claims was April 15, 2025. The bill also makes penalties applicable to an "ERTC promoter," which means any person that provides aid, assistance, or advice with respect to an affidavit, refund, claim or other document relating to an employee retention tax credit (ERTC) or to eligibility or to the calculation of the amount of the credit, if the person (1) charges or receives a fee based on the amount of the ERTC refund or credit and meets a materiality standard, or (2) meets a gross receipts test. For an ERTC promoter, the assessable penalty for aiding and abetting understatement of a tax liability is increased to the greater of $200,000 ($10,000 in the case of an ERTC promoter that is a natural person) or 75 percent of the gross income of the ERTC promoter from providing aid, assistance, or advice with respect to a return or claim for ERTC refund or a document relating to the return or claim. In addition, the bill specifically requires an ERTC promoter to comply with due diligence requirements with respect to a taxpayer's eligibility for (or the amount of) an ERTC and applies a $1,000 penalty for each failure to comply.

Extension of Rules for Treatment Disaster-Related Personal Casualty Losses: The bill extends the special rules for qualified disaster-related personal casualty losses that were enacted by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, including eliminating the requirement that casualty losses must exceed 10 percent of adjusted gross income (AGI) to qualify for the deduction, requiring losses to exceed $500 per casualty in order to be deductible, and allowing taxpayers to claim the casualty loss deduction without itemizing their deductions. The bill extends these rules for any area with respect to which a major disaster was declared by the President during the period beginning on January 1, 2020, and ending 60 days after the date of enactment if the incident period of the disaster begins on or after December 28, 2019, and on or before the date of enactment. The bill also extends the exclusion from gross income for qualified wildfire relief payments received by an individual during tax years beginning after December 31, 2019, and before January 1, 2026.

U.S.-Taiwan Double Tax Relief: Under the bill, income from U.S. sources earned or received by qualified residents of Taiwan is entitled to certain benefits. These benefits include reduced tax rates for income otherwise subject to the 30-percent gross-basis tax; with respect to income effectively connected with a U.S. trade or business, taxation of only that income effectively connected with a U.S. permanent establishment; and preferential treatment of wages and related income earned by such qualified residents. The new rules are analogous to provisions typical in bilateral treaties to which the United States is a party and are based on relevant language found in the Model Treaty. The bill also authorizes the President to negotiate and enter into tax agreements to provide for bilateral tax relief with Taiwan and prescribes the process for approving and implementing such an agreement.

SALT Marriage Penalty Elimination Act (H.R. 7160)

As the vote on H.R. 7024 neared, lawmakers from New York and other high-tax states expressed their concerns that the bill did not increase the $10,000 limit on the state and local tax (SALT) deduction under Code Sec. 164(b)(6). In response, a separate two-page bill, the SALT Marriage Penalty Elimination Act (H.R. 7160), was introduced. Under H.R. 7160, Code Sec. 164(b)(6) would be amended to provide that, for married taxpayers filing joint returns beginning after December 31, 2022, and before January 1, 2024, if the taxpayers' adjusted gross income is less than $500,000, the limit on the SALT deduction is increased from $10,000 to $20,000.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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