Lawmakers propose funding $78B child tax credit and business tax bill

The $78 Billion Bipartisan Proposal to Expand the Child Tax ⁤Credit and Renew Key Business Investment Deductions

The House Ways and Means Committee took ‍a major step towards passing a ‍bipartisan bill that aims to expand the child tax credit⁤ and renew important business tax provisions. The $78 billion proposal is designed to be fully paid for through changes to ‍the pandemic-era employee⁤ retention ​tax credit (ERC).

The bill, which received ​overwhelming support in a 40-3 vote, would enhance the child tax credit while also addressing fraudulent‍ ERC claims. By strengthening‍ enforcement and penalties, the legislation aims‌ to save over $77 billion, making it deficit-neutral.

What is the ‌employee retention tax credit?

The ​ERC is a payroll tax credit that was introduced to support⁤ businesses ​during the pandemic and encourage them to retain their employees instead of laying them⁢ off. However, implementing and determining eligibility ​for the credit proved to be more challenging ​than ⁤anticipated.

Originally ‍part of the CARES Act, the ERC has undergone several amendments. It initially provided a 50% credit on ⁢qualified employee wages, with a cap of $10,000 per employee. Over time, the percentage of qualified wages increased to 70% for 2021, and the per-employee⁤ cap was raised to $10,000 per quarter.

Initially, employers ⁢had to choose between the ERC and the Paycheck Protection Plan ⁣(PPP). However, due to many employers opting for the PPP, policymakers expanded the ERC ​to allow businesses‌ to claim⁢ both credits.

Unfortunately, the IRS faced a ⁣wave of fraud in late 2022 and 2023, leading to a pause in‍ processing claims. Promoters and scammers took‌ advantage of ⁣the credit, causing the need for stricter regulations.

What changes would the legislation bring?

The bipartisan legislation negotiated between Ways and Means Chairman Jason Smith and Senate Finance Committee⁤ Chairman Ron ​Wyden would​ move the filing deadline for backdated ERC claims ‍to January 31. Currently, taxpayers can claim⁢ pandemic-related ‍ERC until April 15, 2025.

The ​legislation also aims to ‌combat fraud by imposing heavier fines on promoters involved ‍in aiding and abetting the ⁣understatement‍ of business‍ owners’ tax liability.

While the Joint Committee on Taxation’s estimate of $77 billion in savings is considered accurate, uncertainties remain regarding the IRS’s ability to recover funds from ineligible claims and enforce penalties.

The White‍ House has expressed support for the proposal, with President Joe Biden backing the fully paid-for tax package. The bipartisan‍ bill is seen as a positive ⁢step towards⁤ fiscal responsibility and addressing child poverty.

How does the Employee Retention ⁢Credit (ERC) provided ‌under the CARES Act provide financial relief to businesses affected by the COVID-19 pandemic?

At was introduced as part of the Coronavirus‌ Aid, Relief, and Economic Security (CARES) Act in March 2020. The‌ credit was designed to provide ⁣financial⁢ relief to businesses that were significantly impacted by the COVID-19​ pandemic and had to‌ either fully​ or partially suspend their operations due to government restrictions or experienced a significant ⁤decline in‌ revenue.

Under the provisions of the CARES Act, eligible employers could claim a tax credit equal to ⁤50% of qualifying wages paid to employees, up to a‌ maximum of $10,000 per employee. The ERC ‍was later extended ‍and expanded through subsequent legislation,​ including the Consolidated Appropriations Act‍ of 2021 and the ⁣American⁤ Rescue Plan Act​ of 2021.

The child tax credit expansion

The proposed bill would make several significant changes to the child tax credit, with​ the aim of providing better support to families⁢ and reducing child poverty.​ Some of ⁢the key provisions of the expansion include:

• Increasing the maximum credit amount from $2,000 to $3,000 per⁤ child, and $3,600 for children under the age of six.
• Expanding the age eligibility⁢ for the credit to include 17-year-olds.
• Making the credit fully ⁤refundable,​ allowing low-income families who may not have a tax liability to still benefit from the credit.
• Providing periodic advance‌ payments of the credit ⁤to families, which is intended ⁢to provide regular support throughout ​the year rather than ​a lump-sum payment⁣ at tax filing.

These changes to the child tax credit are projected to benefit millions of families across the country, particularly those in low-income households. Studies have shown that an expanded and fully refundable child tax credit‍ can significantly reduce child ‍poverty rates and improve ​the overall well-being of children.

Renewal of key business investment deductions

Aside from⁢ the child tax credit expansion, the bill also ⁢includes provisions to ⁤renew critical business tax deductions. This ​includes ⁢the full expansion and extension of the Section 179 expensing limit and the⁣ five-year extension of the full expensing provision for certain property.

The Section ⁤179 expensing ​limit allows businesses to immediately deduct the full cost of qualifying property ⁤(such ‍as equipment and​ software) in the‌ year it is placed in ‌service, rather than depreciating it over several years. This⁤ helps incentivize businesses to invest in new equipment and technology, boosting economic growth and productivity.

The bill‍ also extends the full expensing provision for certain property, ​allowing businesses to deduct 100% of the cost of⁢ qualified property,⁣ including ​improvements to existing buildings, ⁢over a⁢ five-year period. This provision aims to ‌encourage businesses to make long-term ​investments and contribute to economic recovery and job creation.

The way forward

The bipartisan proposal to⁣ expand the child tax credit and renew key business investment deductions marks a​ significant ⁢step towards providing support to families and businesses. By fully⁢ paying ⁣for the proposal through changes to the employee retention tax credit, the bill aims to ensure that the expansions and renewals are fiscally responsible.

As this proposal moves forward, it‌ is important for lawmakers to consider the positive impact that an expanded child tax credit can ​have on reducing child poverty and improving child well-being. Additionally, the renewal of business investment deductions can‌ help stimulate economic growth and job creation, providing much-needed support to struggling businesses.

It is encouraging to see bipartisan ​support for such measures and their potential to create⁢ a positive impact on both ⁢families and ‍businesses. The $78 billion proposal represents a significant investment in the future of ‍our ​economy and the well-being of our children. By passing this proposal, legislators have the opportunity to ⁢make a lasting ⁣difference in the lives of millions of Americans.