Tax Relief for American Families and Workers Act of 2024

We would like to provide you with a summary of the Tax Relief for American Families and Workers Act of 2024 and its potential impact on your taxes.

Summary of the Tax Relief for American Families and Workers Act of 2024:

While this bill is still under consideration in Congress, it contains several provisions that could have a significant positive impact on individuals and families' tax situations. Some key highlights of the proposed bill include:

1. Child Tax Credit (CTC): The plan proposes to increase the maximum refundable amount per child for the Child Tax Credit. It would be $1,800 for 2023, $1,900for 2024, and $2,000 for 2025. This enhancement is expected to benefit the families of 15 million low-income children, potentially lifting 400,000children out of poverty.
2. Business Interest Deduction Limitation: The proposal aims to reinstate a more generous calculation for business interest deductions, reverting to earnings before interest, taxes, depreciation, and amortization (EBITDA) for tax years 2024 and 2025. This change could provide relief to heavily leveraged industries.
3. Research and Development Expenses: The widely unpopular and overly complicated R&D Capitalization rules would be amended under the proposal to postpone the capitalization rules for domestic R&D research through 2025. This would allow more of the credit to be taken during the tax year and encourage research investment here in the United States. It should be noted that the foreign R&D capitalization rules are still in effect, as this only applies to domestic R&D.
4. Bonus Depreciation: The Act proposes to extend 100% bonus depreciation for qualified property through 2025, potentially spurring economic growth by encouraging new investments.
5. Small Business Asset Expensing: The plan includes an increase in the limits for small business asset-expensing under Section 179, allowing greater up-front deductions for qualifying property.
6. Employee Retention Credit (ERC): Arguably the most abused credit in history, the proposal suggests ending the ERC program as of January 31, 2024, and includes measures to increase penalties for ERC-related tax understatement and extend the statute of limitations for ERC claims assessments.
7. Other Provisions: The framework also includes an expanded low-income housing tax credit, relief for disaster-impacted communities, relief provisions for Taiwanese companies in the U.S., and an increase in the threshold for certain tax forms (Forms 1099-NECand 1099-MISC).

What is Not Included….but Could Be?
One glaring omission from this bill is any language pertaining to the removal of the very unpopular SALT (State and Local Taxes) Cap. This cap most notably cuts off property taxes when itemized at10,000, and requires any amount above this to be carried forward. For clients in high-cost-of-living areas, this removes potentially significant tax savings. There have been a few comments from Congress about this, but nothing set in stone quite yet. Fingers crossed that this gets included somewhere in the bill. 

Speculation on Tax Year Impact:
While the exact effective date of the Tax Relief for American Families and Workers Act of 2024 is not confirmed, Congress is potentially targeting tax year 2023 for some (or all) of these potential changes. This explains the rush to get this passed before the January 29th2024 e-file opening day, which unofficially kicks off tax season. However, please keep in mind that legislative timelines can be subject to adjustments during the legislative process.

Disclaimer:
The information provided is based on proposed legislation and is subject to change. It is essential to keep in mind that this bill is currently in the legislative process and has not become law. Therefore, this information should not be considered formal tax advice.

Taking credit for David’s hard work,

Saad Abbas, CPA