In a significant bipartisan move, U.S. lawmakers, spearheaded by Senator Ron Wyden (D., Ore.) and Representative Jason Smith (R., Mo.), have proposed a substantial tax reform package. This $78 billion initiative is aimed at revitalizing business tax incentives and enhancing the child tax credit for families with lower incomes, with a goal for rapid congressional approval before the upcoming tax season.

Central to this proposal is the reform of the employee retention tax credit (ERC), a program from the pandemic era that has been marred by allegations of fraud. The plan proposes a new deadline of January 31, 2024, for ERC claims, considerably earlier than the existing April 2025 deadline. Accompanied by tougher penalties for those promoting credit fraudulently and mandatory disclosure norms, these changes are anticipated to yield savings exceeding $70 billion.

Furthermore, the proposal seeks to retroactively reverse specific business tax changes introduced in the 2017 tax law. This would significantly aid companies with substantial interest expenses, capital investments, and research outlays. The plan aims to reinstate immediate deductions for research expenses and capital expenditures from 2022 through 2025, as well as relax restrictions on interest expense deductions.

Moreover, the Smith-Wyden plan proposes critical enhancements to the child tax credit, notably raising the available amount for low-income households. From the 2023 tax returns, qualifying families could receive up to $1,800 per child, up from the current limit of $1,600. This amendment is expected to benefit around 16 million children and lift approximately 400,000 out of poverty. By 2025, the credit is projected to increase with inflation, offering even more substantial support.

Despite its ambitions, the proposal has elicited mixed reactions in Congress, with some Democrats seeking a more significant expansion of the child tax credit and Republicans approaching cautiously. The impending tax season adds urgency to the discussions, as delays might complicate refunds and pose challenges for the IRS.

If enacted, the Smith-Wyden agreement would synchronize the expiration of these business and child tax credit measures with other parts of the 2017 tax law, potentially leading to a crucial tax-policy showdown aligned with the next presidential and congressional elections. The plan also includes additional measures such as expanding the low-income housing tax credit and revising the tax form requirements for businesses employing independent contractors.

Overall, this bipartisan tax agreement is poised to significantly influence U.S. tax policy, aiming to strike a balance between business interests and the needs of low-income families.

Talley’s professionals have spent literally hundreds of hours reviewing the law, regulations, and FAQs issued on an almost daily basis regarding the ERC and PPP, and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or refund process. Contact us today.