Will a Potential Retroactive Tax Law Delay Tax Filings?

retroactive tax law changes

While millions of taxpayers are preparing and filing their taxes, Congress has been considering some retroactive tax law changes that may affect your tax returns for 2023. Yes, it is March of 2024 and yes, these changes could affect your returns that you will be filing, or may have filed, for 2023. What are the changes? Will it affect you?

The original bill, known as the Tax Relief for American Families and Workers Act of 2024, or H.R. 7024, passed the House on January 19, 2024, with wide bipartisan support. However, it has been stuck in the Senate since then. With a two-week recess and other Senate business, it has not received much attention until the last few days.

Retroactive Tax Law Changes In The Bill

Child Tax Credit

The bill modifies the refundable portion of the child tax credit for 2023. It also increases the credit slightly starting in 2024. This would affect taxpayers who pay less tax than the credit and rely on the refundable portion of the credit to receive more than their tax liability. It only affects taxpayers who have children under age 17 and take the refundable portion of the credit. This is a credit for which you may choose to file even before the law passes. IRS Commissioner Danny Werfel claims the IRS can review tax returns filed and can automatically issue tax refunds for those who are impacted by the new law. At the very least, I would add a reminder in six months to make sure the IRS sends you a refund if the law changes.

Bonus Depreciation

As the law currently stands, the bonus depreciation rules allow for an 80% deduction for the purchase of certain assets. The new law would change this to back to a 100% deduction for 2023 (as it was before 2023). Many taxpayers can take the Section 179 deduction at 100% of the cost of the assets, so this may not apply to all business owners or rental property owners. But if your business has a loss, Section 179 won’t be available and bonus depreciation is a good option. If you use bonus depreciation, you may want to wait to file for this potential tax break. Even if the difference between 80% and 100% is not huge, you may be required to amend returns if you took 80% bonus depreciation and the law changes to 100%.

Interest Deduction Limitations

The current law generally restricts the business interest deduction for businesses with $30 million or more in gross receipts. The new law changes the calculation of income used to calculate the deduction and a business can go back to 2022 to amend returns to apply the new rule.

Deductions for domestic research or experimental costs

The law would allow for the immediate expensing of certain research or experimental expenses for 2022 and 2023. Currently, certain types of research or experimental expenses had to be capitalized and expensed over five years. The new law allows for an immediate deduction for tax years going back to 2022 through 2025.


Other provisions

There are other provisions such as higher limits to the Section 179 immediate deduction for asset purchases, the shutdown of claims for the Employee Retention Credit, and increased penalties for ERC promoters. But the changes above are the more important changes that affect more taxpayers.


When Will it Pass?

Who knows? The House originally passed the bill in mid-January. It needs to pass the Senate and they appear busy with all kinds of other issues. There are also potential changes that could be made to get the support it needs. There is a belief among some policymakers that it could done by March 15th. Some are more optimistic to get it done by April 15th. After it passes it will take the IRS 4-8 weeks to update their systems. And then it could take more time for software companies to update the software to enable the filing of returns.

The best bet is to stay tuned and watch for developments. We will post when we hear more news.