In a rare display of political unity, the House Ways and Means Committee on January 19th overwhelmingly approved the Tax Relief for American Families and Workers Act of 2024 by a staggering 40-3 vote. This landmark bill promises a much-needed financial tax relief for both Americans families and the nation’s businesses, but its swift passage through Congress faces potential roadblocks.
At the heart of the tax bill lies a bolstered child tax credit, offering struggling families increased financial support for raising their children. Additionally, the legislation proposes delaying a burdensome accounting rule for research and development expenses, giving businesses precious breathing room for innovation.
The Tax Relief for American Families and Workers Act of 2024
Further enticing businesses are provisions like extending both 100% bonus depreciation and an enhanced Section 179 deduction, incentivizing investments in equipment and infrastructure.
The bill doesn’t stop there. It also extends tax treaty-like benefits to Taiwan, strengthening economic ties with the Pacific Island nation. For those struck by misfortune, disaster-related tax relief is extended, providing a helping hand in times of hardship.
The bill’s architects propose recouping the cost through adjustments to the COVID-era employee retention tax credit. This includes accelerating the program’s end date and cracking down on fraudulent claims, ensuring responsible fiscal stewardship.
Will This Tax Bill Arrive on Time at Biden’s Desk?
However, getting this bill to President Biden’s desk before the 2023 tax filing season begins is an ambitious hope. Tight congressional schedules in January cast doubt on its swift passage, despite bipartisan support. Even if approved, retroactive provisions applied to the 2023 tax year could throw the IRS into a logistical tailspin, potentially delaying taxpayer refunds.
The Tax Relief for American Families and Workers Act represents a promising step towards alleviating financial burdens for individuals and businesses. Whether this bipartisan effort overcomes procedural hurdles and delivers its intended benefits before the busy tax season remains to be seen. One thing is certain: navigating the political and logistical complexities will be crucial for ensuring this legislation’s ultimate success.
Individual Tax Relief: Child Tax Credit
The proposed bill offers a single tweak for individual taxpayers: an enhanced child tax credit. Currently, this credit provides $2,000 per qualifying child for those with earned income below specific limits. Some of this amount, currently $1,600 for 2023, can be claimed as a refundable credit, meaning it directly decreases your tax bill. However, for taxpayers with one or two children, this refundable portion has limitations. The new bill proposes to loosen these limitations.
One constraint concerns the remaining child tax credit amount beyond the refundable portion. Under the existing rules, the refundable amount can’t exceed that remaining balance. The other limitation restricts the refundable portion to a maximum of 15% of your earned income exceeding $2,500. The proposed bill seeks to ease both these restrictions, potentially making the refundable credit more readily available to eligible families.
For families with three or more children, the existing refundable child tax credit has two layers of limitations:
- First, it can’t exceed the remaining balance of the total credit based on the number of children.
- Second, it’s capped at the higher of two amounts:
- A): The excess of Social Security taxes paid over the earned income credit received.
- B): 15% of earned income exceeding $2,500.
The proposed law aims to simplify things for larger families by calculating the refundable credit per child. Under this scheme, 15% of the taxpayer’s income exceeding $2,500 is multiplied by the number of children to determine the total refundable amount. This change would apply for the 2023, 2024, and 2025 tax years.
Additionally, the proposed law boosts the maximum refundable credit amount for these three years instead of relying solely on inflation adjustments. The new limits would be:
- $1,800 for 2023
- $1,900 for 2024
- $2,000 for 2025
Importantly, the overall child tax credit amount (including both refundable and non-refundable portions) would also be adjusted for inflation starting in 2024, adding an extra bump to the total benefit for families with multiple children.