Yesterday, a tax framework agreement was announced by the Senate Finance Committee Chair Ron Wyden and the House Ways and Means Committee Chair Jason Smith. In the announcement, the plan was called “a commonsense, bipartisan, bicameral tax framework that promotes the financial security of working families, boosts growth and American competitiveness, and strengthens communities and Main Street businesses.”
Highlights of the tax framework agreement include:
Deduction for Research and Experimental Expenditures
According to the technical summary of The Tax Relief for American Families and Workers Act of 2024, “current law provides that research or experimental costs paid or incurred in tax years beginning after December 31, 2021, are required to be deducted over a five-year period. Research or experimental costs that are attributable to research that is conducted outside of the United States are required to be deducted over a 15-year period. The provision delays the date when taxpayers must begin deducting their domestic research or experimental costs over a five-year period until taxable years beginning after December 31, 2025. Therefore, taxpayers may 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.”
Extending Certain Benefits of TCJA
Portions of the 2017 reform bill are addressed in the proposed tax framework designed to extend certain benefits to help businesses. The TCJA allowed for a 100% bonus depreciation rate for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023. Under current law, beginning in 2023, bonus depreciation will phase out annually, 20% per year , until 2027. The proposal would extend 100% bonus depreciation through January 1, 2026
Modification in Overall Limit on Refundable Child Tax Credit
Under current law, the maximum refundable child tax credit is limited to $1,600 per child for 2023, even if the earned income limitation described in the calculation method is in excess of this amount. This provision increases 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, and includes an inflation adjustment.
Increase in Threshold for Information Reporting on Forms 1099-NEC and 1099-MISC
Under current law, the reporting threshold for payments by a business for services performed by an independent contractor or subcontractor and for certain other payments is generally $600. This section generally increases the threshold to $1,000 and adjusts it for inflation after 2024. This section applies to payments made after December 31, 2023.
Enforcement Provisions with Respect to COVID-Related Employee Retention Tax Credit (ERTC)
Under current law, a $1,000 penalty may apply to a person who knows or has reason to know that an understatement of the tax liability of another person would result from the use of his aid, assistance, or advice. This section increases the penalty for aiding and abetting the understatement of a tax liability by a COVID-ERTC promoter, separately defined, to the greater of $200,000 ($10,000 in the case of a natural person) or 75 percent of the gross income of the ERTC promoter derived (or to be derived) from providing aid, assistance, or advice with respect to a return or claim for ERTC refund or a document relating to the return or claim.
We will continue to follow the status of The Tax Relief for American Families and Workers Act of 2024 and apprise you of information that we believe is relevant to you and your business.
DISCLAIMER: The WM Update, WM Wednesday Wisdom, WM Daily Update, and other related communications are intended to provide general information, as of the date of this communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.
Technical Summary of The Tax Relief for American Families and Workers Act of 2024, click here.
Announcement by the U.S. Senate Committee on Finance, click here.