The New Bipartisan Tax Deal – What You Need to Know

By Christopher Migliaccio, JD, Partner

On Tuesday, January 16, 2024, a bipartisan group of Congressional legislators announced agreement on the Tax Relief for American Families and Workers Act of 2024. While it is not yet law, some of its key provisions could require immediate attention from businesses.

Read on for details about:

• The expanded child tax credit
• The return or expansion of several key business provisions (R&D expensing, bonus depreciation, favorable interest deduction rules, Section 179 expensing)
• The near immediate end of the Employee Retention Credit (ERC)

Expanded Child Tax Credit

The bill would expand the child tax credit in multiple ways. First, the limit on the maximum refundable tax credit (currently earned income over $2,500, multiplied by 15%), would now be multiplied by the taxpayer’s number of children for 2023, 2024 and 2025 – a potentially very significant increase. The overall limit per child is increased from $1,600 in 2023 to $1,800, with increases to $1,900 in 2024 and $2,000 in 2025 (with potential for further inflation adjustments in 2024 and 2025). The bill also allows a taxpayer to use certain prior tax year earned income in 2024 or 2025 if their income falls in those years.

Business Tax Provisions

The bill would reinstate several business tax provisions from the Tax Cuts and Jobs Act of 2017 (TCJA) that had – or are scheduled to – sunset under that legislation.

• R&E Expenditures – Starting with the 2022 tax years, research or experimental costs were required to be capitalized, over 5 (domestic) or 15 (foreign) years. The bill would restore full expensing of domestic R&E expenditures through 2025.
  • PKFOD Observation: For already filed 2022 tax returns that capitalized R&E costs, it would seem that amended returns would be required to address this change.
    
    
• Extension of Bonus Depreciation – The TCJA allowed current year expensing of certain business property acquired through the end of 2022. The current year deduction was then to taper down (starting with an 80% current year deduction in 2023). The bill would extend 100% bonus depreciation through the end of 2025. Twenty percent bonus depreciation would still be in place in 2026.
  
  
• Business Interest Deductions – The TCJA implemented a limit on interest deductibility of 30% of EBITDA, which changed to EBIT beginning with the 2022 tax year (which is more restrictive on the allowance of interest). The new bill would extend the use of EBITDA through 2025 and allow taxpayers to elect to use EBITDA in the 2022 and 2023 tax years.
  
  
• Section 179 Caps Increased – Section 179 of the tax code allows immediate expensing of certain depreciable business assets, up to $1 million annually. The cap is reduced when total property placed in service in the tax year is $2.5 million. That had been inflation adjusted to $1.16 million and $2.89 million, respectively, in 2023. The bill would increase the caps to $1.29 million and $3.22 million for 2024, and inflation adjustments would continue.

The End of the ERC

The Employee Retention Credit (ERC) has been the subject of much controversy over the last few months, with the IRS Commissioner indicating he believed up to 95% of current submissions are fraudulent. The bill would end the ERC as of January 31, 2024, with no further amended returns claiming the ERC allowed. The deadline is currently April 15, 2024 for claims relating to 2020 and April 15, 2025 for those relating to 2021.

In addition, the bill focuses on increasing penalties for “ERC promoters,” those who charged contingent fees based on the percentage of the credit or who meet a gross receipts test showing that ERC-related income was a significant percentage of their earnings. The penalty for such promoters for aiding and abetting the understatement increased to the greater of $200,000 ($10,000 for a natural person) or 75% of the gross income the ERC promoter derived.

Other Key Provisions

The bill would also:

• extend tax treaty-like benefits to residents of Taiwan, which had not previously been available
• increase the threshold for 1099-NEC and 1099-MISC reporting to $1,000
• extend certain disaster relief provisions of the tax code
• expand the ceiling for low-income housing tax credit

Contact Us

PKF O’Connor Davies is monitoring the situation in Washington, DC. As it changes, we will keep you informed.

If you have questions, contact the partner in charge of your account or:

Christopher Migliaccio, JD
Partner
212.286.4080 | cmigliaccio@pkfod.com