On January 31, the House of Representatives passed a $78 billion tax package, H.R.7024, the Tax Relief for American Families and Workers Act. The bill contains some provisions that may be helpful to NAIFA members, i.e., increased expensing, a higher reporting threshold, and larger business loan interest deductibility. It also contains, as an offset, a provision that cuts off new ERTC claims.

The House vote, which came under a procedure called suspension of the rules that requires a 2/3 majority to pass, was 357 to 70. The full House vote came after the Ways & Means Committee, by an overwhelmingly bipartisan 40 to 3 vote, approved the bill and sent it to the full House.

 The bipartisan package was negotiated by Senate Finance Committee chair Sen. Ron Wyden (D-OR) and House Ways & Means Committee chair Rep. Jason Smith (R-MO). It contains:

• An increase in the deduction for business loan interest—the increase is calculated by including deductions allowed for depreciation, amortization, or depletion (i.e., earnings before interest, taxes, depreciation, and amortization, or EBITDA)—that calculation results in a larger interest deduction than under current law. The increase in business interest deductibility is effective until the end of 2025—an expiration date that parallels the expiration of most of the 2017 tax law’s individual and estate tax provisions.
• More generous expensing/depreciation rules—This provision increases the amount that can be expensed (deducted in full) rather than depreciated (deducted over the useful life of the property) for costs associated with acquiring “qualifying property. “Qualifying property” is defined as tangible personal property, off-the-shelf computer software, and qualified real property that is purchased for use in the active conduct of a trade or business. The new limits on this expensing rule would be $1.29 million (up from $1 million) for full expensing – the expensing amount would be reduced to the extent that the cost of qualifying property exceeds a limit. That limit would be $3.22 million (up from $2.5 million). These amounts are indexed for inflation.
• Reporting threshold—This provision raises from $600 to $1,000, the threshold at which reporting of payments for services performed by an independent contractor is required. The $1000 amount would be adjusted for inflation after 2024 and would be based on payments made during the calendar year rather than the taxable year. It would apply to payments made after December 31, 2023.
• Expanded child tax credit (CTC)—Generally, the $2000 CTC would be indexed for inflation, adjusted by the number of children in a qualifying taxpayer’s household, and refundable to the extent the taxpayer earns enough income to qualify.
• Increase in the deduction for domestic research & development expenditures.
• Disaster relief—These rules would allow victims of last year’s natural disasters to deduct their losses “above the line” (i.e., even they do not itemize) even if the losses do not exceed the ten percent of adjusted gross income limit.
• An expansion of the low-income housing tax credit.
• Adjustment of tax rules related to Taiwan due to lack of a tax treaty with Taiwan.
  ERTC—the offset to the cost of the $78 billion tax bill is a restriction of the pandemic-era employee retention tax credit (ERTC). The ERTC changes would raise all but $260 million of the $78 billion cost of H.R.7024. Generally, the changes include cutting off the ERTC—new claims could not be submitted as of January 31, 2024, and a series of rules and penalties aimed at promoters of ERTC claims.

This bill faced a rocky road to passage in the House. It survived a rebellion by unhappy high-tax-state Republicans who insisted on a provision providing relief from the $10,000 limit on state and local tax (SALT) deductibility. After almost defeating a rule for debate on an unrelated bill, the dissidents won agreement from Speaker of the House Rep. Mike Johnson (R-LA) for a separate vote on the SALT issue.

Now that the bill has cleared the House, it faces challenges in the Senate. Some Democratic Senators think the package contains too little for the CTC, while some Republican Senators think the CTC provision is too much. There is also concern about “innocent” ERTC claimants who might not be able to claim ERTC benefits to which they “should” be entitled, say those who express this concern.

Plus, some Senators are insisting on a “robust amendment process.” Senate Finance Committee ranking member Sen. Mike Crapo (R-ID) has officially requested a committee mark-up. Negotiations on an amendment process continue. Action is not expected before next month.

Prospects: Most Washington insiders concede that there are major hurdles that could prevent the enactment of H.R.7024. But, despite that possibility, most believe the bill will ultimately pass. President Biden supports it, so if it passes Congress, it is near-certain it will be signed into law.

 NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.