Enhanced tax credits for businesses and families could come under a $78 billion tax framework announced by Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Ways and Means Committee Chairman Jason Smith (R-Mo.). The proposed legislation was approved by the U.S. House of Representatives in late January but is currently stalled in the U.S. Senate.
If eventually approved by the Senate and signed by President Biden, the proposed Tax Relief for American Families and Workers Act of 2024 would improve the child tax credit (CTC), low-income housing credit, and R&D expensing. Additionally, if Congress agrees, the funding compromise would essentially bring an end to the much-maligned employee retention tax credit (ERC) and provide enhanced disaster relief for some taxpayers.
“Fifteen million kids from low-income families will be better off as a result of this plan, and given today’s miserable political climate, it’s a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead, Sen. Wyden said in a statement.
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Did the child tax credit pass for 2024?
Although the framework being passed by the House was a positive step, Wyden had said the goal was for Congress to pass the tax legislation in time for families and businesses to benefit in this 2024 tax filing season. That was a tall order. The focus at that time had been on Congress averting a partial government shutdown and ever since, the bill has stalled in the Senate where the timeline for its passage remains unclear.
Congressman Smith showed support for the tax proposal stating in a release, “American families will benefit from this bipartisan agreement that provides greater tax relief, strengthens Main Street businesses, boosts our competitiveness with China, and creates jobs.” Smith added, “I look forward to working with my colleagues to pass this legislation.”
National Taxpayer Advocate Erin Collins had expressed concern about the IRS being able to adjust to significant tax law changes during tax season if the legislation passed. However, IRS Commissioner Danny Werfel pointed out that the IRS has previously dealt with less-than-ideal timing of Congressional tax law changes.
During the last tax season, Werfel urged taxpayers to file their accurate returns when ready and not to wait on Congress to pass this or other legislation. If Congress passes the bill, the IRS would apply any changes automatically so that taxpayers would not have to file amended returns.
New tax deal: Child tax credit and bonus depreciation
Key aspects of the three-year tax framework focus on R&D expensing rules and child tax credit changes that if passed by the Senate, would have applied beginning with the 2023 tax year. That means returns taxpayers could have been impacted by proposed late-breaking tax changes.
- Child tax credit increase. If passed, the maximum refundable child tax credit amount would be multiplied by the number of qualifying children for the 2023, 2024, and 2025 tax years. The refundable child tax credit amount would increase under this deal by $200 for the 2023 tax year. The refundable amount would increase by $100 for the 2024 and 2025 tax years, and the CTC would be adjusted annually for inflation.
- R&D expensing. The tax proposal would restore a previous interest deduction for businesses, expand small-business expensing, and extend bonus depreciation. The framework includes full expensing for research and development costs through 2025. (Currently, businesses must amortize their research and development costs over five years.)
ERC tax credit deadline
According to Wyden and Smith, the proposal would save over $70 billion in taxpayer dollars by accelerating the deadline for filing backdated ERC claims to Jan. 31, 2024. As Kiplinger has reported, the ERC has been a significant issue for the IRS as the agency has been plagued by fraudulent claims.
The IRS initially ceased processing new ERC claims last year (the agency announced a change to that policy in August 2024) and has since implemented new procedures for withdrawing potentially fraudulent claims or for taxpayers who have received refunds to repay them. However, the deadline for repaying incorrect ERC claims at a discount closed on March 22, 2024.
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