A relief bill unveiled by House Democrats would further extend the employee retention credit, repeal an international tax provision concerning interest allocation, and make changes to refundable credits aimed at middle-income families.
The House Ways and Means Committee is expected to mark up nine legislative proposals of the $1.9 trillion coronavirus relief package over three days, beginning February 10.
“From increasing direct assistance to those who need it most to expanding tax credits for low- and middle-income workers, we deliver substantial solutions in this package,” Ways and Means Committee Chair Richard E. Neal, D-Mass., said in a statement.
Democrats are expected to use a parliamentary procedure known as budget reconciliation to push the bill through the Senate. The bill stays true to several initiatives proposed by Democrats for middle- and low-income taxpayers, including sending out $1,400 checks to qualifying individuals making less than $75,000 per year (or married couples earning up to $150,000).
There was some concern among lawmakers that the income threshold should be lowered to $50,000 for individuals and $100,000 for married couples filing jointly, but lawmakers representing taxpayers on the East and West coasts urged President Biden and their colleagues to reconsider, citing constituents in areas with high costs of living.
“People in our district are hurting financially because of the Coronavirus pandemic and can’t afford to lose out on the next round of Economic Impact Payments, just because they are in a high cost of living area like ours,” Ways and Means member Mike Thompson, D-Calif., said in a February 5 letter to President Biden.
The bill would extend the employee retention credit that was implemented by the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136). The measure has helped companies keep employees on the payroll during the pandemic. The credit was further improved upon by Congress allowing it to be used by companies that also received Paycheck Protection Program funding.
Democrats are also pursuing their goal to make the child tax credit fully refundable for 2021 and are calling for an increase in the amount to $3,000 per child. The earned income tax credit would be expanded for 2021 and the age to claim the credit reduced from 25 to 19.
The credits would be made available to more people by expanding them to U.S. territories. The Joint Committee on Taxation estimates that the changes to the child tax credit would cost $109 billion over the next 10 years and that changes to the EITC would cost $26 billion.
International Tax Changes
Tucked into the bill is a provision repealing the U.S. affiliated group election to allocate interest expense on a worldwide basis, effective for tax years beginning in 2021.
Added to the code in 2004, section 864(f) has been deferred several times. Under the rule, members of a worldwide affiliated group can make a one-time election to allocate and apportion their interest expenses on a group basis.
Practitioners have argued that although the election would likely be made in 2022, on 2021 tax returns, the long-lasting implications meant the sometimes-ignored provision deserved much more attention.
Since enactment of the Tax Cuts and Jobs Act 13 years after the enactment of section 864(f), many taxpayers have excess foreign tax credits in their global intangible low-taxed income basket but excess foreign tax credit limitation in their general basket, and interest expense allocation is important to them. Once the election is made, it is irrevocable without the consent of the government. Regulations under section 864(f) are a priority for the IRS and Treasury for 2021. The move to repeal the provision would give the government an additional $22 billion over 10 years, according to JCT estimates.
Andrew Velarde contributed to this article.