On January 31st, the U.S. House of Representatives passed the Relief for American Families & Workers Act of 2024, which includes significant changes to Section 174 Research and Development (R&D) expensing rules, enhancements to the Child Tax Credit, and restoration of several other business friendly provisions. The bi-partisan agreement still needs to be finalized and passed by the Senate, then go to the White House for the President’s signature. Here are the highlights:
- Research & Development (R&D) expensing: Businesses of all sizes can immediately deduct the cost of their U.S.-based R&D investments instead of amortizing them over five years. This means full expensing for domestic research & experimental (R&D) expenditures paid or incurred during taxable years beginning after December 31, 2021 through taxable years beginning before December 31, 2025. Foreign R&E expenses are still required to be capitalized and amortized for 15 years for expenses paid or incurred during taxable years after December 31, 2021.
- Interest deductibility: Restoration of the EBITDA-based business interest limitation under Section 163(j), which provides continued flexibility for businesses forced to borrow at higher interest rates to meet their payroll obligations and expand their operations.
- 100 percent expensing: Restores full and immediate expensing for investments in machines, equipment, and vehicles. Under Section 168(k), 100% Bonus Depreciation is extended through December 31, 2025.
- Expand small business expensing cap: Increases the amount of investment that a small business can immediately write off under Section 179 to $1.29 million for tax years beginning after December 31, 2023, with future year threshold amounts indexed for inflation.
- Cut red tape for small business: Adjusts the reporting threshold for businesses that use subcontract labor from $600 to $1,000 and in the future will be indexed for inflation.
- Taiwan double tax relief: Removes current double taxation that exists for businesses and workers with a footprint in both the United States and Taiwan.
- The refundable Child Tax Credit: Increases from $1,600 per child to $1,800 per child in 2023 and would rise to $2,000 per child by 2025.
To offset the cost of these extensive changes, the Act ends the Employee Retention Tax Credit program early, a measure expected to save over $70 billion. The ERC program was terminated on January 31, 2024. No additional claims will be accepted. Penalties for preparers found to be involved in fraudulent claims have been increased. The statute for IRS assessments of ERC claims has been extended to 6 years.
Gray, Gray & Gray will continue to monitor this evolving situation and provide updates. If you have questions about the R&D tax credit extensions, bonus depreciation, small business expense cap, the Child Tax Credit, or the impact of ending the ERC program, please contact us at 781.407.0300.