On August 1, 2024, the Tax Relief for American Families and Workers Act of 2024 (HR 7024) failed to pass the Senate. With 60 votes needed to advance, the bill fell short with 48 in favor and 44 against. Primarily driven by support by Democrats, the vote faced opposition from most Republicans with three exceptions: Markwayne Mullin (R-OK), Josh Hawley (R-MO) and Rick Scott (R-FL). The $78 billion bill was approved by the House of Representatives earlier this year with a sweeping result of 357-70.
WHY IS IT IMPORTANT
The Tax Relief for American Families and Workers Act of 2024 includes financial assistance to low-income families and tax advantages related to §163(j) interest deductibility, bonus depreciation and a child tax credit.
It becomes particularly relevant in light of the Tax Cuts and Jobs Act (TCJA) of 2017 provisions that expire at the end of 2025. TCJA included some taxpayer-friendly updates like doubling child tax credit to $2000, allowing bonus depreciation, lowering corporate tax rates to 21 percent and fully expensing research and development (R&D) related costs.
When it passed in the House of Representatives in January, the bill included the following highlights:
- Section 163(j) Interest Expense Limitation:
- Ability to claim higher business interest expense deductions for the 2024 and 2025 tax years
- Section 179 Deduction and Bonus Depreciation:
- Ability to take higher maximum deductions and phaseout limitations for the 2023 tax year
- Ability to take 100-percent bonus depreciation for the 2023-2025 tax years
- Section 174 Research and Experimentation Expenditures:
- Ability to expense all qualifying domestic R&D costs fully in the year incurred
- Expand Child Tax Credit:
- Increase the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in tax year 2024 and $2,000 in tax year 2025
Please see additional details on the bill here.
ESTIMATED COST AND TAX SAVINGS BEHIND THE BILL
The costs of these tax breaks were to potentially be offset by one of the legislation proposals to prohibit any employee retention credit claims made after Jan. 31, 2024, due to numerous fraudulent applications. The IRS has already paid out roughly $230 billion on ERC refunds, significantly exceeding its original estimate of $55 billion. If the bill had passed, the IRS could have recovered about $80 billion in tax savings.
WHAT IS NEXT?
Congress is now out of session until Sept. 9. The timing and language in the bill has sparked a debate from senators on both sides of the aisle, with some hinting that the failure to pass was a political tactic.
Some leaders are optimistic for another attempt at a different outcome right after the five-week break. However, at this time, it will not be surprising if the bill is unsuccessful in passing before the November elections.
GHJ will continue monitoring this topic closely for relevant changes and provide updates as they come. For any questions regarding the above, please do not hesitate to contact GHJ’s Corporate Tax Practice.
