Enhanced tax credits for businesses and families could come soon 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.).
If approved by Congress 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 accompanying the tax framework summary.
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Did the child tax credit pass for 2024?
Although the framework is 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’s a tall order. The focus until recently had been on Congress averting a partial government shutdown.
But the main time crunch is that the IRS began accepting federal income tax returns on Jan. 29. The U.S. House of Representatives passed the bill. The proposed legislation moved to the U.S. Senate, where its passage is unclear.
Congressman Smith showed support for the tax proposal stating “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 expressed concern about the IRS being able to adjust to significant tax law changes during tax season. Speaking at an American Bar Association meeting, Collins said she appreciated Congress' efforts to help taxpayers. But she added that realistically, the new proposed legislation would "negatively impact the filing season."
Meanwhile, IRS Commissioner Danny Werfel has pointed out that the IRS has previously dealt with less-than-ideal timing of Congressional tax law changes. Werfel has urged taxpayers to file their accurate returns when ready and not to wait on Congress to pass this or other legislation.
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, would apply beginning with the 2023 tax year. That means returns people are preparing now to file would be impacted by the 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 January 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 ceased processing new ERC claims last year and has since implemented new procedures for withdrawing potentially fraudulent claims or for taxpayers who have received refunds to repay them.
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