House Approves Tax Relief Bill, Clearing Path for Senate Action on Section 174 and ERC

February 1, 2024

At a glance

The main takeaway: A tax bill that could return full deductibility of U.S. research expenses, end the Employee Retention Credit (ERC), expand the Child Tax Credit, and more, has overwhelmingly passed in the House with bipartisan support.
The impact on your business: Businesses that have suffered under the recent changes to Section 174 could see tremendous relief, at the expense of the ERC.
Next steps: Aprio will continue to monitor the progress of this legislation. Potentially impacted taxpayers, especially those with spring filing deadlines, should schedule a consultation with their Aprio advisor.

The full story:

In a resounding display of bipartisan support, the House voted 357 to 70 on January 31 to pass H.R. 7024, officially titled the Tax Relief for American Families and Workers Act of 2024. This legislative initiative mirrors the bipartisan tax agreement unveiled on January 16 by House Ways and Means Committee Chairman Jason Smith and Senate Finance Committee Chairman Ron Wyden. The $79 billion tax package, aimed at providing relief to both businesses and families, is now poised for consideration by the Senate. The House’s overwhelming bipartisan support paves the way for potential enactment, signaling a significant step forward in the legislative process.

The bill includes several high-profile tax law changes, among them a return to full deductions of U.S. research expenses under Section 174, the end of the ERC, an expansion of the Child Tax Credit, and more

Key Provisions of H.R. 7024

Deduction for domestic research and development expenditures (Section 174)

One of the pivotal elements of H.R. 7024 is the restoration of Section 174 expensing for U.S.-based research and development (R&D) expenses. Under this provision, taxpayers can now deduct domestic R&D costs incurred between January 1, 2022, and December 31, 2025. Notably, Section 174 expensing for foreign R&D expenses remains excluded, subjecting them to a 15-year amortization period. The legislation also introduces flexibility by allowing taxpayers to elect either immediate deduction or capitalization and amortization of R&D costs over a minimum of 5 years or their useful life.

Ending the Employee Retention Credit

The $79 billion cost of H.R. 7024 is largely offset by accelerating the deadline for filing backdated Employee Retention Tax Credit (ERC) claims to January 31, 2024, effectively ending the ERC. The legislation also makes several other changes to current ERC laws, such as extending the statute of limitations on assessment to six years and increasing the penalties for ERC promoters who failed to comply with due diligence requirements.

Extension of 100 percent bonus depreciation (Section 168(k))

The legislation extends 100% bonus depreciation for qualified property placed in service between January 1, 2023, and December 31, 2025, with a retention of 20% bonus depreciation for property placed in service after December 31, 2025 (or December 31, 2026, for property with longer production periods).

Extension of Interest Deduction Rules (Section 163(j))

H.R. 7024 extends the allowance of interest deductions to compute alternative taxable income (ATI) without considering depreciation, amortization, or depletion. Previously expired on January 1, 2022, this legislation extends the allowance for tax years beginning after December 31, 2023, and before January 1, 2026.

United States-Taiwan Expedited Double-Tax Relief

H.R. 7024 introduces treaty-like benefits to relieve double taxation for businesses engaged in cross-border activities between the United States and Taiwan. The legislation outlines specific conditions for Taiwan corporate tax residents to qualify for these benefits.

Other Notable Provisions

In addition to the provisions listed above, H.R. 7024 includes several other noteworthy measures:

Child tax credit enhancements: An indexing of the child tax credit starting in 2024 and increases to the refundable maximum amount for 2023, 2024, and 2025.
Temporary increase in Section 179 small business expensing: $1M limitation is increased to $1.29M and $2.5M limitation is increased to $3.22M.
Improvements to the low-income housing tax credit: State housing credit ceiling increase and changes to tax-exempt bond financing requirement.
Increase in threshold for requiring information reporting with respect to certain payees: Forms 1099-NEC and 1099-MISC reporting threshold to be increased from $600 to $1,000 and will be adjusted for inflation for future years.

The Bottom Line

With the House having cleared the path, the Senate now faces the task of determining when and under what circumstances it will consider H.R. 7024. While the Senate’s stance remains uncertain, the robust bipartisan support witnessed in the House vote bolsters the bill’s chances of progression.

Aprio will continue closely monitoring the progression of this legislation to best advise our clients. Several provisions included in H.R. 7024 could have significant impact on tax filings for the upcoming spring deadlines. Schedule a consultation with your Aprio tax advisor to discuss the potential impact these changes, if passed, could have on your business and tax burden.