On January 31, 2024, the House passed the Tax Relief for American Families and Workers Act of 2024 by a 357 to 70 vote. The bill now goes to the Senate for consideration, and many Senators have indicated a desire to make changes to the bill. Highlights of the AFWA of 2024 include increases in the child tax credit, delays to required capitalization of research and experimentation expenditures, changes to the business interest limitation calculation, extension of 100% bonus depreciation, and changes to the Employee Retention Tax Credit. It’s important to note that these are proposed changes. No modifications will take effect until the bill is officially signed into law.
Enhanced Child Tax Credit
The proposed bill increases both the overall amount of the Child Tax Credit (CTC) to a maximum of $2,500 per child and the refundable portion from $1,800 in 2023 up to $2,000 in 2025. For tax years 2024 and 2025, a taxpayer can use the preceding year’s earned income for calculating the CTC.
Research and Experimentation Expenditures:
The requirement to amortize deductions for domestic research and experimental expenses over five years is delayed until tax years beginning after December 31, 2025. The bill does not clarify how to treat unamortized deductions for 2022 and 2023, such as by amended returns, accounting method changes, or other ways to claim the remaining deductions.
Business Interest Limitation:
For tax years beginning after 2023 and before 2026, the calculation of adjusted taxable income (ATI) for purposes of limiting business interest expense now allows deductions for both depreciation and amortization. Taxpayers can also elect to use these rules for tax years beginning after 2021 and before 2024.
Bonus Depreciation:
Qualifying property placed in service before January 1, 2026, is eligible for 100% bonus depreciation. The bonus depreciation rates for property placed into service in 2026 and 2027 are 20% and 0%, respectively.
Section 179 Deduction:
For property placed into service in 2024, the Section 179 deduction increases to $1.29 million, with a phase-out starting at $3.22 million. These amounts are adjusted for inflation.
Employee Retention Credit:
The proposed bill includes increased penalties for fraudulent promoters, an extension of the statute of limitations of ERTC claims to 6 years and most significantly would terminate the period for ERTC refunds as of January 31, 2024.
Our team at DHJJ is tracking the bill’s progress and will provide updates and strategic advice once new information emerges.
