Tax Framework Released: Tax Relief for American Families and Workers Act of 2024

Business Tax

While this is a positive sign, it is still paramount that business owners reach out to their Congressional leaders to express their support of the tax framework and the impact such restrictive federal tax law is having on their operations and growth.

Framework Highlights

A high-level summary of the framework includes:

  • Research and Experimental (R&E) Expenditures Capitalization (Section 174):The framework would allow for immediate R&E expensing incurred in tax years beginning after December 31, 2021.Instead, the bill would delay the 5-year domestic R&E capitalization requirement until taxable years beginning after December 31, 2025.
    • Highlight: The ability to delay capitalization requirements under the framework only relates to domestic R&E, not foreign R&E expenditures.
  • Extension of Allowance for Depreciation, Amortization, or Depletion in Determining the Limitation on Business Interest (Section 163(j)): Under the Tax Cuts and Jobs Act, the ability to deduct business interest expense was limited to 30% of adjusted taxable income. For taxable years beginning after December 31, 2021, adjusted taxable income is significantly reduced as taxpayers are required to include depreciation and amortization deductions, thereby severely decreasing the amount of deductible interest expense.

    The framework still limits the ability to deduct business interest expense based on 30% of adjusted taxable income, however, adjusted taxable income would be calculated before depreciation and amortization deductions. The framework would extend the increased adjusted taxable income base to earnings before interest, taxes, depreciation, and amortization (EBITDA) for taxable years beginning after December 31, 2023, and before through January 1, 2026.
    • Highlight: The framework allows taxpayers to elect to apply a broader adjusted taxable income base of EBITDA for taxable years beginning after December 31, 2021.
  • Extension of 100 Percent Bonus Depreciation: Bonus depreciation was reduced to 80% for qualified property placed into service after December 31, 2022, and to 60% for qualified property placed into service after December 31, 2023.

    The framework would extend 100 percent bonus depreciation for qualified property placed in service after December 31, 2022, and before January 1, 2026. For property place in service after December 31, 2025, and before January 1, 2027, bonus depreciation would remain at 20%.
    • Highlight: The framework also proposes an increase in Internal Revenue Code Section 179 expensing for qualified property. For the 2023 taxable year, a 179 expense of $1.16 million is allowed but decreased for every dollar of qualified property placed in service during the taxable year that exceeded $2.89 million. The framework would increase the limitations to allow $1.29 million of 179 expensing for the 2023 taxable year which would not be reduced until qualified property for the year exceeds $3.22 million.
  • Child Tax Credit: The framework would continue to calculate the child tax credit by multiplying a taxpayers earned income in excess of $2,500 by 15%, but now would allow the amount to be multiplied by the number of qualifying children. This adjustment would allow the child tax credit to be applied on a per-child basis as opposed to per taxpayer basis. In addition, the maximum refundable child tax credit would increase from the current $1,600 for the 2023 taxable year to $1,800.Lastly, for the 2024 or 2025 taxable year, the framework allows a taxpayer to elect to use their earned income from the prior taxable year or the current taxable year when calculating their child tax credit. Therefore, if earned income was less in a prior year, the child tax credit would not decrease.
  • Employee Retention Credit Elimination: A portion of the framework costs is proposed to be offset by eliminating the ability to make an Employee Retention Credit claim after January 31, 2024.The ability to make Employee Retention Credit claims is currently scheduled to expire as of April 15, 2025. Potential ERC claims should be submitted as soon as possible.

In addition to child tax credit modifications, the framework also expands low-income housing credit and financing provisions, disaster tax relief provisions, and U.S.-Taiwan tax provisions. To see a detailed summary of the framework, click here.

Contact Us

For more information on this topic, please contact a member of Withum’s Business Tax Services Team.