Fresh into the new year, the Tax Relief for American Families and Workers Act of 2024 was announced, which includes some noteworthy tax benefits for U.S. taxpayers. As of Jan. 31, 2024, this bipartisan tax deal was passed by the U.S. House of Representatives and is headed for a Senate vote next.  

Overall, this proposal retroactively reverses several business tax changes from the Tax Cuts and Jobs Act (TCJA). Doeren Mayhew’s tax pros highlight key areas of the proposed tax relief changes: 

Child Tax Credit

Current Law

Credit is equal to $2,000 per child for taxpayers whose earned income does not exceed certain threshold amounts. A portion of this credit can be applied as a refundable credit, up to $1,600 for 2023 (indexed for inflation).  

The maximum refundable child tax credit is computed by multiplying that taxpayer’s earned income (in excess of $2,500) by 15%. 

Proposed Change

Modifies the maximum refundable credit calculation amount by providing that taxpayers first multiply their earned income (in excess of $2,500) by 15%, then that amount by the number of qualifying children. This would apply for tax years 2023, 2024 and 2025, and the maximum amount of the refundable credit will be statutorily increased for each tax year - $1,800, for 2023, $1,900 for 2024 and $2,000 for 2025.  

The maximum amount of the overall child tax credit will be indexed for inflation for 2024 and 2025.

Research and Experimental (R&E) Expenses 

Current Law

Domestic R&E costs paid or incurred for tax years beginning after Dec. 31, 2021, are required to be capitalized and amortized over a five-year period (15 years for foreign expenditures).

Proposed Change

Delays when taxpayers must begin deducting R&E costs over the five-year period to taxable years beginning after Dec. 21, 2025. This will allow immediate expending of domestic R&E costs paid or incurred in the tax years beginning after Dec. 31, 2021, and before Jan. 1, 2026.  

Foreign R&E expenditures will still be deducted over the current 15-year period.  

Business Interest Expense Deduction

Current Law

This deduction reverted to its TCJA rules in 2023, which imposes a limitation on the deduction and removes the addback of depreciation, amortization and depletion in the adjusted taxable income (ATI) calculation.  

Proposed Change

Restores the allowance for depreciation, amortization or depletion when determining the limitation on business interest for tax years beginning after Dec. 31, 2023, and before Jan. 1, 2026.

Taxpayers can also elect to restore depreciation, amortization and depletion to the carve-out for tax years beginning after 2021 and before 2024.  

Bonus Depreciation

Current Law

Under the current phase-out schedule, provides a 60% deduction for qualified property acquired and place in service in the 2024 tax year (40% in 2025 and 20% in 2026 before it fully sunsets in 2027).

Proposed Change

Extends 100% bonus depreciation through 2025.  

Section 179 Deduction

Current Law

Businesses may elect to expense the cost of certain qualifying property (depreciable tangible personal property, off-the shelf computer software and qualified real property purchased for use in the active conduct of a trade or business) rather than recover the cost through depreciation.  

The deduction amount is indexed for inflation. For 2024, the deduction amount is capped at $1.22 million, and the limit is reduced dollar-for-dollar by the amount of the expense in excess of $3.05 million. 

Proposed Change

Increases the maximum amount a taxpayer may expense to $1.29 million, reduced by the amount by which the cost of qualifying property exceeds $3.22 million for 2024. This applies to property placed in service in taxable years beginning after Dec. 31, 2023.  

These amounts are adjusted for inflation for taxable years beginning after 2024.  

Employee Retention Tax Credit (ERTC) 

Current Law

Introduced in March 2020 at the height of the COVID-19 pandemic to provide businesses with a credit against certain payroll taxes (expanded to include Medicare taxes in 2021) if they retained employees during lockdown that may have limited the business’ income. Under current law, taxpayers can continue making ERTC claims through April 15, 2025.  

Due to the huge number of fraudulent claims, the IRS froze its acceptance of ERTC claims in 2023 to investigate its backlog of potential fraud. An amnesty program was also announced for taxpayers who may have discovered a potential instance of an unqualified ERTC claim.

Proposed Change

Terminates the period for making ERTC claims on Jan. 31, 2024.

Creates several measures to combat fraudulent claims, including significant increases in penalties on fraudulent ERTC promotions. There is also a provision that effectively requires ERTC promoters to report themselves to the IRS. Finally, the proposed bill extends the limitations period on assessments of ERTC claims to six years.

Our tax pros will continue to monitor this proposal deal and keep you informed as more news is announced. Until then, we're here to help with your 2024 tax filing needs.