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Tax committee chairs announce business and family tax relief agreement
January 2024
In brief
What happened?
House Ways and Means Committee Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) on January 16 announced a bipartisan, bicameral tax framework agreement on business and individual tax relief.
Why is it relevant?
The proposed “Tax Relief for American Families and Workers Act of 2024” restores Section 174 expensing for US-based R&D investments, the EBITDA-based business interest limitation under Section 163(j), and 100% 'bonus' depreciation under Section 168(k) through the end of 2025 on a retroactive, seamless basis. Notably, Section 174 expensing is not restored for foreign R&D expenses, which will remain subject to 15-year amortization. The proposed legislation also features an enhanced child tax credit provision.
The tax package includes Taiwan double taxation relief, an expanded low-income housing tax credit, disaster tax relief, expanded Section 179 small business expensing, and Form 1099 information reporting relief. The estimated cost of the tax package is offset by accelerating the deadline for filing backdated COVID-related employee retention tax credit (ERTC) claims to January 31, 2024. The ERTC provision is estimated to save over $70 billion, according to statements released by the tax committee chairs.
Action to consider
Business leaders will need to send a clear message to House and Senate leaders that they should consider the Smith/Wyden bipartisan tax framework agreement “must-pass” legislation for companies making investments and creating jobs in the United States.
In detail
Tax committee chairs propose “The Tax Relief for American Families and Workers Act of 2024”
The business and family tax relief framework agreement announced by Chairmen Smith and Wyden includes the following key business provisions:
- Section 174 expensing: The framework agreement would allow taxpayers to deduct currently domestic research or experimental costs that are paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2026. Research or experimental costs that are attributable to research that is conducted outside of the United States would continue to be deducted over a 15-year period.
- Section 163(j) interest deductions: The framework agreement would extend the application of interest deductions without regard to any deduction allowable for depreciation, amortization, or depletion (i.e., earnings before interest, taxes, depreciation, and amortization (EBITDA)) to tax years beginning after December 31, 2023 (and, if elected, for tax years beginning after December 31, 2021), and before January 1, 2026.
- Section 168(k) “bonus” depreciation: The framework agreement would extend 100% bonus depreciation for qualified property placed in service after December 31, 2022, and before January 1, 2026 (January 1, 2027, for longer production period property and certain aircraft) and for specified plants planted or grafted after December 31, 2022, and before January 1, 2026. The agreement would retain 20% bonus depreciation for property placed in service after December 31, 2025, and before January 1, 2027 (after December 31, 2026, and before January 1, 2028, for longer production period property and certain aircraft), as well as for specified plants planted or grafted after December 31, 2025, and before January 1, 2027.
Other provisions in the framework agreement include:
- Enhancements to the child tax credit that would apply for tax years 2023, 2024, and 2025, including modifications to the calculation of the refundable child tax credit.
- A temporary increase in Section 179 small business expensing.
- US-Taiwan double-taxation relief provisions.
- Tax relief for disaster-impacted communities.
- Low-income housing tax credit provisions.
- An increased threshold for Forms 1099-NEC and 1099-MISC information reporting for payments by a business for certain services performed by an independent contractor or subcontractor.
Observation: With the 2023 individual tax filing season set to begin January 29, there is a short timeline to advance tax legislation that can pass both the House and Senate. At the same time, IRS Commissioner Daniel Werfel met recently with the tax committee leaders to discuss how the IRS would seek to implement legislation providing retroactive tax relief for business and individual taxpayers.
The cost of the proposed business and family tax relief framework agreement is to be offset by new enforcement provisions related to the COVID-related Employee Retention Tax Credit (ERTC). The proposal would increase the penalty for aiding and abetting the understatement of a tax liability by a COVID-ERTC “promoter.” Under current law, taxpayers can claim COVID-related ERTC until April 15, 2025. The framework agreement would bar additional claims after January 31, 2024.
What’s next
The House Ways and Means Committee could hold a markup on the Smith/Wyden tax framework as soon as this week. A revenue estimate for the legislation will be provided by the staff of the Joint Committee on Taxation prior to action by the Ways and Means Committee.
With the House scheduled to be in recess during the week of January 22, the earliest the House could hold a floor vote would be the week of January 29.
The proposed business and family relief tax legislation might be a candidate for the "suspension" calendar, which requires a two-thirds majority vote for passage. The House currently is composed of 220 Republicans and 213 Democrats (with two vacant seats that had been held by Republicans). A two-thirds majority vote would require the bipartisan support of at least 286 House members.
The outlook for Senate action on the proposed tax legislation is currently unclear. In a January 16 statement, Finance Committee Ranking Member Mike Crapo (R-ID) described the Smith/Wyden framework agreement as a “thoughtful starting point for the House to begin the process.” Senator Crapo added that he “will continue working with [his] Senate colleagues to build broad, bipartisan support for a tax package that provides appropriate relief for working families and businesses.”
Observation: A strong House vote that demonstrates broad, bipartisan support for the business and family tax relief package proposed by Chairmen Smith and Wyden could encourage the Senate to act on a House-passed bill.
Congress first must act on legislation to continue temporary funding for the federal government to avoid a partial government shutdown after January 19, when four of the 12 fiscal year (FY) 2024 annual federal appropriations bills are set to expire. A second group of eight annual appropriations bills, which include IRS funding, is set to expire on February 2.
House Speaker Mike Johnson (R-LA) and Senate Majority Leader Chuck Schumer (D-NY) recently announced an agreement to extend both sets of “laddered” temporary funding measures through March 1 and March 8, respectively. House and Senate appropriations committee leaders are working on legislation that would fund the government through the September 30 end of FY 2024.
Observation: Action by Congress to avoid a partial government shutdown could improve the prospects for possible House and Senate action on business and family tax relief legislation.
Note: The Smith/Wyden agreement does not address other temporary tax provisions that have expired or are scheduled to expire in 2024 or future years. For example, provisions that expired in 2022 include measures related to the railroad maintenance tax credit, a full deduction for certain business meals provided by a restaurant, and a special rule for certain health and dependent care flexible spending arrangements.
Observation: Congress in late 2023 extended temporarily certain Federal Aviation Administration (FAA) excise taxes through March 8, 2024. Action on FAA excise taxes could provide a vehicle for consideration of some miscellaneous expired or expiring tax provisions. Action on expiring individual tax provisions in the 2017 Tax Cuts and Jobs Act are not expected to be considered until 2025.
For additional information
Tax Relief for American Families and Workers Act of 2024 - Staff Technical Summary
For more tax policy insights, see PwC’s 2024 Tax Policy Outlook: Defining the Choices Ahead
Policy on Demand: Expansive tax bill includes nuances, offsets
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