Tax extenders bill stalled | Accounting Today

The tax extenders legislation is still tied up in the Senate after being passed in the House as senators are still seeking changes in some of the provisions, such as the expanded Child Tax Credit.

At the end of January, the House passed the $78 billion bill, known as the Tax Relief for American Families and Workers Act, and sent it to the Senate. However, the Senate Finance Committee has not yet done a markup on the bill, reportedly amid resistance from Republicans like ranking member Sen. Mike Crapo, R-Idaho, and former chairman Chuck Grassley, R-Iowa. Accounting Today reached out to their offices as well as Senate Finance Committee chairman Ron Wyden, D-Oregon, for comment.

Crapo’s office pointed to a statement he issued after the bill passed the House. “Now that the House has passed H.R. 7024, the Senate will go through its own process,” he stated.  “I look forward to working with my colleagues to vet the legislation, address concerns, and make the necessary changes to build support.”  

He has not made any official statements beyond that, a spokesperson noted, but in hallway interviews with reporters he has highlighted concerns with the prior year’s earnings provision of the Child Tax Credit that would enable some parents to claim a larger tax break.

Wyden’s office said he is continuing to have discussions with Senate Majority Leader Chuck Schumer, D-New York, and his colleagues on finding the best path forward that gets the bill passed quickly and signed into law. No decisions have been made regarding changes or a markup in committee. With 357 votes in favor of the bill in the House, Wyden feels there’s going to be strong support in the Senate, according to his spokesperson. 

The version of the Child Tax Credit that was passed by the House made the Child Tax Credit more generous, but not as generous as the version included in the American Rescue Plan Act of 2021, which was fully refundable and temporarily provided monthly checks to lower-income families to help alleviate poverty.

The bill would index the Child Tax Credit to inflation, while keeping in place work requirements. It would incrementally increase the refundable portion of the tax credit for 2023, 2024 and 2025. There is flexibility for taxpayers to use either current- or prior-year income to calculate the Child Tax Credit in 2024 or 2025.

Under current law, the maximum refundable Child Tax Credit for a taxpayer is computed by multiplying that taxpayer’s earned income (in excess of $2,500) by 15%. The provision in the tax extenders bill passed by the House would modify the calculation of the maximum refundable credit amount by providing that taxpayers first multiply their earned income (in excess of $2,500) by 15%, and then multiply that amount by the number of qualifying children. This policy would be effective for tax years 2023, 2024 and 2025.   

Under current law, the maximum refundable child tax credit is limited to $1,600 per child for 2023, even if the earned income limitation described above is in excess of this amount.  The tax bill passed by the House increases the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025, along with the inflation adjustment described below.   

The bill passed by the House would adjust the $2,000 value of the Child Tax Credit for inflation in tax years 2024 and 2025, rounded down to the nearest $100.  

For tax years 2024 and 2025, taxpayers could elect to use their earned income from the prior tax year in calculating their maximum Child Tax Credit if their earned income in the current tax year was less than the taxpayer’s earned income in the prior taxable year.

Some taxpayers have been worried that they would need to wait to file their tax returns this tax season to take advantage of the expanded Child Tax Credit, but the IRS is urging taxpayers not to wait. The IRS will make any needed adjustments automatically if the bill gets passed.

Under the legislation passed by the House, there would be a special rule for certain early-filed 2023 returns to ensure that taxpayers filing their 2023 tax returns at the beginning of the 2024 tax filing season receive the correct Child Tax Credit amount given the per-child and refundable amount changes made in this title. To the extent that a taxpayer would be eligible for an increased Child Tax Credit, the IRS would need to “execute such payment expeditiously,”” according to a summary of the bill. 

Another complication involves the state and local tax deduction, which was capped by the Tax Cuts and Jobs Act of 2017 at a maximum of $10,000 per taxpayer. Congressional Democrats and Republicans in high-tax states like New York, New Jersey and California have repeatedly called for increasing that amount, often referred to as the SALT cap. In late January, a group of Republicans from blue states introduced a bill in the House that would double that amount for married couples to $20,000 for tax year 2023, but would only apply to couples who earn less than $50,000 per year. House Speaker Mike Johnson, R-Louisiana, allowed a vote on the bill, known as the SALT Marriage Penalty Elimination Act, so the lawmakers wouldn’t block the Tax Relief for American Workers and Families Act, and it passed in the House Rules Committee on Feb. 1. But it too seems to be stalled for now.

Even though the legislation is limited to couples who earn less than $500,000 per year, an analysis from the Institute on Taxation and Economic Policy found it would still mostly benefit high-income taxpayers. It said the benefits would go almost completely to families earning between $140,000 and $500,000.

Another think tank, the Tax Policy Center, estimated that fewer than one out of 1,000 households earning below $100,000 would qualify for a tax cut under the plan, and for households with “expanded cash income” between $200,000 and $500,000, and 29% would get a tax cut averaging $1,330. It contended that 34% of those earning $500,000 to $1 million would also benefit, by an average of $2,230, despite the $500,000 cutoff, due to a more expansive definition of income than adjusted gross income.

The Tax Relief for American Families and Workers Act includes a number of other provisions such as the ability to fully deduct research and development expenses in the first year, 100% bonus depreciation, disaster tax relief, improvements in the Low Income Housing Tax Credit, interest expensing and a tax agreement with Taiwan. 

The bill would increase the amount of business interest that a taxpayer could deduct for tax years starting after Dec. 31, 2021 and prior to Jan. 1, 2026. It would allow 100% bonus depreciation of qualified property placed in service after Dec. 31, 2022, and prior to Jan. 1, 2026. In addition, it would increase the amounts eligible for immediate expensing for qualifying property placed in service in 2024 and would allow taxpayers to deduct amounts paid for domestic research or experimental costs for tax years beginning after Dec. 31, 2021. In addition, it would impose penalties on Employer Retention Tax Credit promoters and end the filing of new ERC claims as of Jan. 31.