H.R. 7024: Key Tax Changes for Businesses and Families

H.R. 7024, known as the Tax Relief for American Families and Workers Act of 2024, represents a significant bipartisan tax proposal. While the bill passed the House of Representatives in early 2024, it later stalled in the Senate, and its enactment is not expected. The legislation was designed to stimulate economic activity by adjusting several business-related tax deductions while also providing financial assistance to families through modifications of personal tax credits. It addresses a range of provisions that were set to expire or change under existing law.

Major Business Tax Provisions

Research and Development (R&D) Expensing

Under the Tax Cuts and Jobs Act of 2017, a major shift occurred for businesses incurring R&D expenses. Beginning in the 2022 tax year, companies could no longer immediately deduct these costs and were instead required to capitalize and amortize domestic R&D expenditures over a five-year period.

H.R. 7024 proposes a retroactive suspension of this amortization requirement. If enacted, businesses would be permitted to fully expense domestic R&D costs for tax years beginning after December 31, 2021, and before January 1, 2026. The retroactive nature of the provision means businesses could amend prior year returns to claim the full deduction.

100% Bonus Depreciation

Bonus depreciation allows businesses to immediately deduct a percentage of the cost of eligible new and used assets. The 2017 tax law initially set this at 100%, but it was designed to phase down over time. For property placed in service during 2023, the bonus depreciation rate dropped to 80%, and it was scheduled to decrease further to 60% in 2024.

The proposed legislation seeks to reverse this phase-down temporarily. It would restore 100% bonus depreciation for qualified property placed in service during 2023, 2024, and 2025. The retroactive application to 2023 is a notable feature, offering businesses that made significant investments an opportunity to reduce their tax liability for that year.

Business Interest Expense Limitation

Internal Revenue Code Section 163(j) limits the amount of business interest expense that a company can deduct. Prior to 2022, the limitation was calculated as a percentage of earnings before interest, taxes, depreciation, and amortization (EBITDA). For tax years beginning after December 31, 2021, the calculation became more restrictive, based on earnings before interest and taxes (EBIT), which results in a smaller potential deduction.

H.R. 7024 proposes to return to the more favorable EBITDA-based calculation for tax years beginning after December 31, 2023, and before January 1, 2026. This provision is particularly beneficial for businesses with significant debt and substantial capital assets, as it directly reduces their taxable income.

Changes to the Child Tax Credit

The Tax Relief for American Families and Workers Act of 2024 introduces several temporary modifications to the Child Tax Credit (CTC). A central feature is the incremental increase of the refundable portion, known as the Additional Child Tax Credit (ACTC). For the 2023 tax year, the maximum refundable amount would rise from $1,600 to $1,800 per child, and continue to increase to $1,900 for 2024 and $2,000 for 2025.

This change directly benefits lower-income families who may not have enough tax liability to utilize the full $2,000 credit. Because a family whose tax liability is less than the total credit amount can receive the difference as a refund, the increased cap provides more money to these families.

A more complex change involves how the refundable portion of the credit is calculated. Under current law, the refundable amount is determined by multiplying a family’s earned income over $2,500 by 15%, up to the maximum refundable limit. The bill proposes a shift to a per-child calculation for the 2023, 2024, and 2025 tax years. This means a family would perform this calculation for each qualifying child separately and add the results, effectively multiplying their potential refund by the number of children they have.

The bill also introduces an inflation adjustment for the CTC. Starting in 2024, the base $2,000 maximum credit amount would be indexed to inflation, allowing it to grow over time. The refundable portion of the credit would also be adjusted for inflation beginning in 2024, ensuring the value of the credit is not eroded by rising costs of living.

Termination of the Employee Retention Credit

The Tax Relief for American Families and Workers Act of 2024 takes action to conclude the Employee Retention Credit (ERC) program, a pandemic-era relief measure. The bill proposes to establish a firm deadline of January 31, 2024, for the submission of all ERC claims. This measure is intended to bring an end to a program that has been affected by a high volume of fraudulent and improper claims.

In addition to ending the program, the bill introduces enforcement mechanisms to combat fraud. It extends the statute of limitations for the IRS to assess ERC-related issues, giving the agency more time to audit and investigate suspicious claims. The legislation also creates significant new penalties targeted at “COVID-ERTC promoters,” who are individuals or firms that advised businesses to file for the credit improperly, often charging substantial fees for their services.

Other Key Components of the Bill

Disaster Tax Relief

The bill includes provisions to provide targeted tax relief for individuals and businesses affected by recent federally declared disasters. This relief covers victims of specific events, such as certain wildfires, the train derailment in East Palestine, Ohio, and various hurricanes. A key element of this relief is the exclusion of certain disaster-related payments from gross income, meaning that affected taxpayers would not have to pay federal income tax on the aid they receive.

The legislation also modifies the rules for deducting personal casualty losses in these designated disaster areas. The bill would waive the requirements for taxpayers to itemize their deductions and for losses to exceed 10% of their adjusted gross income, making the relief more accessible.

U.S.-Taiwan Tax Agreement

To foster closer economic ties with Taiwan, the bill includes provisions designed to prevent the double taxation of income for businesses and individuals operating in both the United States and Taiwan. While not a formal tax treaty, the legislation aims to provide many of the same benefits. This would be achieved by creating mechanisms to reduce the tax burden on cross-border investment and employment, making it easier for U.S. companies to invest and operate in Taiwan, and vice versa.

Low-Income Housing Tax Credit

The bill proposes enhancements to the Low-Income Housing Tax Credit (LIHTC), a program that encourages the development of affordable rental housing. The legislation would increase the state allocation ceiling for the credit by 12.5% for the calendar years 2023 through 2025. This would provide states with more resources to support the construction and rehabilitation of low-income housing projects.

Another change involves lowering the bond-financing threshold for LIHTC projects. Currently, a project must have at least 50% of its financing come from tax-exempt bonds to qualify for certain credits. The bill would reduce this threshold to 30%, making it easier for affordable housing developments to access the credit.