Get Your Free Assessment (561) 257-3436

Tax Extenders Legislation Still Tied Up At the Senate

The House approved the $78 billion Tax Relief for American Families and Workers Act at the end of January and forwarded it to the Senate. However, Republicans, including ranking member Sen. Mike Crapo, R-Idaho, have opposed the idea, as the Senate Finance Committee has not yet marked up the legislation. 

A spokesman pointed out that he hasn’t made any public remarks beyond that. Still, in hallway conversations with reporters, he has voiced worries about the Child Tax Credit’s earnings clause from the previous year, which would have allowed some parents to claim a more significant tax cut.

Too generous?

The American Rescue Plan Act of 2021, which was entirely refundable and briefly gave lower-income families monthly payments to help reduce poverty, had a more generous version of the Child Tax Credit than the House enacted.

The measure would maintain the labor requirements while indexing the credit to inflation. For 2023, 2024, and 2025, it would gradually raise the tax credit’s refundable component. In 2024 or 2025, taxpayers can compute the credit using income from either the current or previous year.

Under current legislation, the maximum refundable Child Tax Credit is calculated by increasing the taxpayer’s earned income (above $2,500) by 15%. A provision in the tax extenders would alter the maximum refundable credit computation measure that the House passed. Specifically, taxpayers would need to multiply their earned income (over $2,500) by 15% before multiplying the total by the number of eligible children. This policy is effective for the 2023, 2024, and 2025 tax years.

The House plan would round down the $2,000 inflation credit to $100 for tax years 2024 and 2025.  

If their current earned income was less than their past earned income, individuals might utilize their former earned income to calculate their maximum CTC in 2024 and 2025.

Taxpayers may be apprehensive about waiting to file their taxes this season to take advantage of the more prominent Child Tax Credit, but the IRS advises against it. If the measure passes, the agency will immediately adjust.

The House bill would create a special rule for early-filed 2023 returns to ensure that taxpayers filing their 2023 tax returns at the start of the 2024 tax season receive the correct Child Tax Credit amount given the per-child and refundable amount changes. If a taxpayer is qualified for an additional credit, the IRS must “execute such payment expeditiously,” according to a legislative summary.    

Issues with SALT

State and local tax deductions are another issue, restricted at $10,000 per taxpayer under the Tax Cuts and Jobs Act of 2017. Congressional Democrats and Republicans in high-tax areas like New York, New Jersey, and California have consistently lobbied for hiking the SALT ceiling.

In late January, blue-state Republicans filed a House measure to raise that allowance for married couples to $20,000 for tax year 2023, but only for couples earning less than $500,000. House Speaker Mike Johnson, R-Louisiana, authorized a vote on the SALT Marriage Penalty Elimination Act so members wouldn’t obstruct the Tax Relief for American Workers and Families Act, which passed in the House Rules Committee on Feb. 1. However, it appears to be halted.

The Institute on Taxation and Economic Policy determined that the measure would primarily benefit high-income taxpayers while limited to couples earning less than $500,000. Families earning $140,000 to $500,000 would receive practically all benefits.

Other provisions of the Tax Relief for American Families and Workers Act include the following: 100% bonus depreciation, disaster tax relief, interest expensing, 100% deduction of research and development expenses in the first year, enhancements to the Low Income Housing Tax Credit, and a tax agreement with Taiwan. 

Under the plan, a taxpayer can deduct more business interest for tax years beginning after December 31, 2021, and ending before January 1, 2026. If qualifying property is taken into operation after December 31, 2022, but before January 1, 2026, 100% bonus depreciation will be allowed. Furthermore, it would enable taxpayers to deduct amounts paid for domestic research or experimental expenditures for tax years starting after December 31, 2021, and it would raise the quantities available for immediate expensing for qualified items placed in operation in 2024. Furthermore, it would prohibit the submission of new Employer Retention Tax Credit claims after January 31 and penalize advocates of the program. 

  • Increase access to the child tax credit with a progressive increase in the refundable component for 2023, 2024, and 2025.
  • Eliminate the penalty for more prominent families: Ensure that the child tax credit phase-in is administered evenly to households with numerous children.
  • One-year income lookback: Allow taxpayers to compute the child tax credit using current or prior-year income in 2024 or 2025, similar to bipartisan action taken six times in the previous 15 years.
  • Inflation relief: Beginning in 2024, the tax credit will be adjusted to reflect inflation.
  • Research and Development (R&D) expensing allows firms of all sizes to immediately deduct the cost of their R&D expenditures rather than waiting five years, promoting American innovation and enhancing our competitive position against China and the rest of the world.
  • Interest deductibility: Continued flexibility for firms that borrow at higher interest rates to satisfy payroll obligations and expand operations.
  • 100% expensing: Restore complete and prompt expensing for machinery, equipment, and vehicle expenditures.

Taiwan double tax relief: Strengthen America’s competitive position against China by eliminating the present double taxation for enterprises and personnel having operations in both the United States and Taiwan.

  • Expand the small company expensing ceiling: Increase the investment that a small firm may immediately write off to $1.29 million, up from the $1 million maximum set in 2017.
  • Reduce red tape for small firms by increasing the reporting threshold for enterprises that utilize subcontract labor from $600 to $1,000 and indexing for inflation, the first change since the 1950s.
  • Help households get back on their feet by providing catastrophe tax assistance for recent storms, flooding, wildfires, and the Ohio train disaster.
  • Increase the availability of low-income housing by expanding the Low-Income Housing Tax Credit, a successful public-private collaboration with more significant state allocations and a lower tax-exempt bond financing threshold.
  • Saving approximately $70 billion in public cash by extending the deadline for filing backdated claims under the COVID-era Employee Retention Tax Credit to January 31, 2024, a program plagued with cost overruns and fraud.