HR 4820 and the Tax Relief for American Families Act

A bipartisan tax proposal, the Tax Relief for American Families and Workers Act of 2024, was passed by the U.S. House of Representatives as H.R. 7024. After passing the House on January 31, 2024, with a vote of 357 to 70, the legislation stalled in the U.S. Senate. In the summer of 2024, the bill failed to gather the necessary votes to advance, halting its path to becoming law.

The bill’s framework included enhancements to the Child Tax Credit and the retroactive reinstatement of several business expensing provisions. It sought to address economic challenges by modifying tax rules that had recently changed or were scheduled to change.

Expanded Child Tax Credit Provisions

A feature of the act was a multi-faceted expansion of the Child Tax Credit (CTC) to provide greater financial support to low-income families. The proposal focused on increasing the amount of the credit that could be received as a refund, which is a cash payment a taxpayer can receive even if they owe no federal income tax. These changes were structured to be phased in over three years.

The maximum refundable amount per child would have risen from $1,600 to $1,800 for the 2023 tax year, $1,900 for 2024, and $2,000 for 2025. The proposed bill would have also changed the calculation for families with multiple children by applying the per-child refundable limit before the income-based phase-in. This would have increased the refund for many low-income families with more than one child.

The legislation also would have introduced a “lookback” provision for the 2024 and 2025 tax years. This would have allowed taxpayers to use their earned income from the previous year to calculate their CTC if it was higher than their current year’s income. This flexibility was designed to help families who experience a temporary drop in income.

Finally, the bill proposed to adjust the overall $2,000 maximum credit amount for inflation, beginning in 2024. Indexing the credit to an inflation metric would have preserved the value of the tax benefit over time.

Key Business Tax Deductions

The proposed act would have retroactively restored several tax deductions for businesses, addressing changes from the Tax Cuts and Jobs Act of 2017. The changes focused on research and development expensing, the deductibility of business interest, and bonus depreciation.

Research and Development Expensing

The bill addressed the treatment of research and development (R&D) costs. Under a rule that took effect after December 31, 2021, businesses are required to amortize domestic R&D expenses over a five-year period, rather than deducting them immediately.

The proposed legislation would have retroactively suspended this requirement for domestic R&D expenditures for tax years 2022 through 2025. The treatment for foreign R&D costs, which must be amortized over 15 years, would have remained unchanged.

Interest Expense Deductibility

The bill also proposed a temporary and retroactive change to the limitation on deducting business interest expenses. Currently, the deduction for net business interest expense is limited to a percentage of a company’s earnings before interest and taxes (EBIT).

The legislation would have reverted to a more generous standard by allowing businesses to calculate the limitation based on earnings before interest, taxes, depreciation, and amortization (EBITDA). This change would have applied retroactively for tax years beginning after December 31, 2021, and extended through tax years beginning before January 1, 2026. The EBITDA standard results in a higher limitation, permitting a larger interest deduction.

Bonus Depreciation

Another business provision was the proposed restoration of 100% bonus depreciation, which allows businesses to immediately deduct the full cost of eligible assets. Under current law, 100% bonus depreciation dropped to 80% for property placed in service in 2023 and is scheduled to continue decreasing. The act would have retroactively restored 100% bonus depreciation for qualified property placed in service from 2023 through 2025.

Real Estate and Disaster Relief Tax Changes

The legislation included targeted provisions aimed at stimulating affordable housing development and providing financial relief to victims of recent federally declared disasters.

Low-Income Housing Tax Credit

To address the nationwide shortage of affordable housing, the bill proposed two enhancements to the Low-Income Housing Tax Credit (LIHTC). The first change would have restored a temporary 12.5% increase in the credit ceiling allocated to each state for calendar years 2023 through 2025.

A second modification would have lowered the bond-financing threshold for projects to qualify for the 4% LIHTC. The bill proposed to lower this threshold from 50% to 30% for projects financed by bonds issued after December 31, 2023, making it easier for developers to access the credit.

Disaster Tax Relief

The act also would have provided tax relief for individuals and businesses affected by certain recent natural disasters. It would have allowed taxpayers who suffered qualified casualty losses to deduct those losses without having to itemize their deductions. This relief would have applied to losses in federally declared disaster areas, including those related to the East Palestine, Ohio, train derailment.

The bill would have also eliminated the normal requirement that personal casualty losses must exceed 10% of a taxpayer’s adjusted gross income to be deductible. It also clarified that qualified disaster relief payments received by individuals would be excluded from their gross income.

International and Programmatic Tax Adjustments

The bill contained two other provisions: one to foster closer economic ties with an international partner and another to curtail fraud in a pandemic-era relief program.

U.S.-Taiwan Double Taxation Relief

The legislation included the United States-Taiwan Expedited Double-Tax Relief Act. This provision was aimed at preventing the double taxation of income for businesses and individuals operating in both the United States and Taiwan. It would have used domestic law to provide treaty-like benefits, such as reduced tax rates on cross-border investment income.

Employee Retention Credit Termination

A financing component of the bill was the early termination of the Employee Retention Credit (ERC) program. The ERC was a refundable tax credit created during the COVID-19 pandemic to help businesses retain employees. The bill proposed to end the period for filing all new ERC claims, setting a deadline of January 31, 2024.

This measure was designed to combat widespread fraudulent claims that have overwhelmed the IRS, and it would not have affected legitimate claims filed before the deadline. The action was coupled with increased penalties for promoters of fraudulent ERC claims to further deter abuse.