Tax Relief Update: American Families and Workers Act (2024)
The Tax Relief for American Families and Workers Act of 2024, introduced by House Ways and Means Chair Jason Smith (R-MO) and Senate Finance Chair Ron Wyden (D-OR), aims to provide tax relief for families, boost business growth, and support U.S. competitiveness.
House Ways and Means Chairman Jason Smith (MO-08) and Senate Finance Chairman Ron Wyden (D-OR) introduced a bipartisan tax framework to strengthen working families' financial security, boost growth, and support American competitiveness and local businesses.
It also provides disaster relief and cuts red tape for small businesses. This framework outlined by the House Ways and Means Committee aimed at a more holistic approach to tax relief:
Support working families: This includes an enhanced Child Tax Credit, which can provide substantial financial assistance to families with children.
Enhance innovation: This involves expanding R&D spending, which can incentivize businesses to invest in research and development.
Rebuild communities: This entails tax relief for disaster-struck areas, which can help these communities recover from natural disasters or other crises.
Address fraud and waste: This involves eliminating the Employee Retention Tax Credit program, which has been associated with fraud and abuse.
These provisions are expected to have positive economic impacts, such as job creation and economic growth.
The bipartisan agreement provides greater tax relief for American families.
It strengthens Main Street businesses and boosts competitiveness with China.
The bill supports job creation and cuts red tape for small businesses.
It includes disaster relief and ends a costly COVID-era program linked to fraud.
The legislation secures over $600 billion in pro-growth tax policies, supporting over 21 million jobs.
The plan will benefit 15 million low-income children through pro-family policies.
It addresses rising housing costs by improving the Low-Income Housing Tax Credit, aiming to build over 200,000 new affordable housing units.
The bill incentivizes research and development (R&D), promoting innovation and boosting U.S. economic competitiveness.
Wyden aims to pass the plan in time for families and businesses to benefit in the upcoming tax filing season.
The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), introduced by Senate Finance Committee Chair Ron Wyden (D-Oregon) and House Ways and Means Committee Chair Jason Smith (R-Missouri), was passed by the House of Representatives on January 31, 2024, with bipartisan support (357-70).
This bill aimed to stimulate business growth and provide tax relief for families, but it encountered strong resistance in the Senate.
The key provisions of the bill included the reinstatement of significant business tax breaks, such as immediate deductions for domestic research and experimentation costs, the restoration of 100% bonus depreciation, and limits on the IRC Code Section 163(j) deduction for business interest expenses.
Additionally, the bill terminated the employee retention credit effective January 31 and extended child tax credit benefits.
Despite strong House support, Senate critics argued that the bill offered only short-term solutions without addressing long-term fiscal concerns.
In July 2024, Senate Majority Leader Chuck Schumer (D-New York) scheduled a cloture vote to advance the bill, but the Senate voted 48-44 against it, failing to meet the 60-vote threshold required to overcome a filibuster.
While the bill appears unlikely to pass in 2024, Schumer’s “no” vote on the cloture allowed for a potential reintroduction later in the year, keeping the possibility of future debate alive.
Some analysts speculate that Schumer's cloture vote may have been politically motivated to expose the limited Republican support for the bill, which saw only three Senate Republicans voting in favor. There remains a chance that vulnerable Senate Republicans may reconsider their stance if the bill is reintroduced later this year.
Refundable Credit Calculation: The maximum refundable child tax credit is now calculated by multiplying earned income (over $2,500) by 15% and then by the number of qualifying children. This applies to tax years 2023, 2024, and 2025.
Increased Credit Limits: The refundable child tax credit limit per child is raised to $1,800 for 2023, $1,900 for 2024, and $2,000 for 2025, with adjustments for inflation in 2024 and 2025.
Inflation Adjustment: The $2,000 child tax credit will be adjusted for inflation in tax years 2024 and 2025, rounded down to the nearest $100.
Earned Income Rule: Taxpayers can use earned income from the prior year if it was higher than their current year’s earned income, for calculating their maximum child tax credit in 2024 and 2025.
Research & Experimental Expenditures: Deduction of domestic research costs over five years is delayed until 2026, allowing current deductions for 2021-2025.
Business Interest Deduction: EBITDA method for calculating business interest deductions is extended for tax years 2024-2025.
100% Bonus Depreciation: Extended for qualified property placed in service through 2026, phasing down after 2025.
Expensing Business Assets: Maximum expensing under Section 179 increased to $1.29 million, with a $3.22 million phase-out limit starting in 2024, adjusted for inflation.
Reduced Withholding Taxes: U.S. source income for qualified Taiwanese residents will have reduced withholding tax rates (10% for interest/royalties, 15% for dividends, and 10% for certain shareholders).
Permanent Establishment (PE) Rules: Taiwan residents' U.S. income tax liability will be based on the PE standard in treaties, not the U.S. trade or business standard.
Employment Income Exemption: Certain wages for Taiwanese residents performing personal services in the U.S. will not be taxed, with exceptions like directors' fees and pensions.
Qualified Resident of Taiwan: Defined as individuals/corporations taxed in Taiwan, with special rules for dual residents and corporations subject to benefits limitations.
Reciprocal Tax Benefits: U.S. benefits apply only if Taiwan offers reciprocal tax benefits to U.S. persons. Regulatory authority will ensure compliance with U.S. Model Tax Treaty provisions.
Extension of Disaster-Related Casualty Loss Rules: Extends special rules from the 2020 Disaster Tax Relief Act, allowing deductions for personal disaster losses without itemizing, for disasters declared from Dec. 28, 2019, to 60 days after the proposal's enactment.
Wildfire Relief Payments Exclusion: Excludes from gross income any payments received for wildfire-related losses, as long as not compensated by insurance, applying to tax years 2020-2025.
East Palestine Train Derailment Payments: Treats payments related to the Feb. 2023 train derailment as tax-exempt disaster relief, covering various losses and expenses, applicable to amounts received after Feb. 3, 2023.
Increase in Low-Income Housing Credit Ceiling: Restores the 12.5% increase in the 9% Low-Income Housing Tax Credit (LIHTC) ceiling for 2023-2025, effective after Dec. 31, 2022.
Lower Bond Financing Requirement: Reduces the bond-financing threshold from 50% to 30% for projects with bonds issued before 2026, with a transition rule for buildings with bonds issued in 2024 or 2025.
Effective for New and Rehabilitated Buildings: Applies to buildings placed in service after Dec. 31, 2023, including rehabilitation projects treated as new buildings.
Increase in Reporting Threshold for Forms 1099-NEC and 1099-MISC: Threshold for reporting payments to independent contractors increases from $600 to $1,000, effective after Dec. 31, 2023, and adjusted for inflation after 2024.
COVID-ERTC Fraud Penalty: Increases penalties for promoters of fraudulent COVID-Employee Retention Tax Credit (ERTC) claims to the greater of $200,000 ($10,000 for individuals) or 75% of their gross income from aiding such fraud.
Due Diligence Penalties: COVID-ERTC promoters must meet due diligence requirements or face $1,000 penalties for each failure.
Disclosure Requirements for ERTC Promoters: ERTC promoters must disclose transactions and client lists to the IRS, similar to listed transactions.
The Tax Relief for American Families and Workers Act of 2024 offers significant financial benefits for families and businesses, from enhanced child tax credits to incentives for research and development. Despite challenges in the Senate, the bill’s provisions aim to support economic growth, improve housing affordability, and strengthen U.S. competitiveness. Whether it’s providing disaster relief or cutting red tape for small businesses, this legislation represents a comprehensive approach to boosting American families and the economy.
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Jason Dinesen
