Lack of direction from Congress on a $78 billion tax package could complicate filing season for millions of taxpayers, with small business owners and low-income families with children bearing the brunt of the impact.
The Tax Relief for American Families and Workers Act of 2024 includes a trio of business deductions that could impact 33 million small businesses and an expansion of the child tax credit, which is claimed by nearly 46 million Americans annually. Most of the bill’s provisions would apply retroactively to 2023 federal returns as well as 2024 and 2025 returns.
But with the current filing season well underway, the legislation is stalled. While the bill passed the US House with an overwhelmingly bipartisan margin of 357-70, it has been slow-walked in the Senate in recent days and eventual passage remains far from certain.
“I’m going to work with Leader [Chuck] Schumer and my colleagues on both sides to get this done as soon as possible,” Sen. Ron Wyden (D-Ore.), one of the biggest Senate proponents of the deal, said recently. But his effort has stalled, with final consideration of the deal now likely to be pushed back to late February at the earliest.
Not all households are impacted if they’re already eligible to claim the full child tax credit, and plenty of businesses are similarly unaffected. But many taxpayers are now navigating a thin margin between Congress’ last-minute negotiations, the IRS filing deadline, and getting a timely refund.
“It’s so irresponsible of Congress to [delay voting],” Kathryn Keane, an enrolled agent and a National Tax Practice Institute fellow, told Yahoo Finance. “[Changing laws] during the tax season creates a very, very stressful tax season because your filings today may not be accurate tomorrow. Decisions that we made today may not be the best tomorrow because Congress retroactively changed it.”
Taxpayers claiming the child tax credit could get a bigger tax refund if the bill passes. But before getting a refund, many must decide whether file an uncertain return or wait for more guidance.
The IRS is prohibited from processing refunds for the refundable portion of the child tax credit before Feb. 15, giving Congress a few more days to decide on the matter. But it appears exceedingly unlikely that Congress will meet this deadline. The refundable portion, known as the additional child tax credit, allows low- and moderate-income working parents to get a refund for up to $1,600 per child.
“If (lawmakers) wait until after that date, then it’s just going to be a nightmare,” Keane said. “These are people that need this money, so do we want to have them wait any longer than they really need to?”
“These are families living paycheck to paycheck.”
The proposed legislation does not increase the child tax credit amount but would temporarily bump up the limit to the refundable portion until 2025. For instance, a parent earning $15,000 with two kids would get a refund of $3,600 instead of $1,857.
As the bill stalled, the IRS told taxpayers to file their returns when ready instead of waiting for Congress. IRS Commissioner Danny Werfel said the agency would help amend filed returns to adhere to the new law.
“If there’s a change that impacts your return, we will make the change, and we will send you the update, whether it’s an additional refund or otherwise, without you having to take any steps,” Werfel said last month.
Larry Pon, a San Francisco-based CPA, is skeptical of the IRS’s offer. While the agency has been adding resources to improve taxpayers’ experience, its technology may not be advanced enough to identify tax returns that require additional refund credits.
“It might take the IRS six months to catch up or to reprogram the computers and all that kind of stuff,” Pon said. “The IRS does not move on a dime.”
On the other hand, another tax expert thinks it’s unlikely the IRS would overpromise and under-deliver, given the nationwide scrutiny the IRS is under.
“If [the IRS] says it can do it, it probably can do it,” said Robert Weinberger, fellow at the Urban-Brookings Tax Policy Center. “There are a whole bunch of people who like to play gotcha with the IRS. Anyone running the IRS would be well advised to be cautious about promising more than they can deliver.”
This is not the first time Congress has entertained changing tax law during tax season. Three years ago, the American Rescue Plan Act exempted unemployment compensation up to $10,200 from federal tax. Specifics in the bill changed as it moved between the House and Senate, and changed again when it was finalized.
“What is so aggravating about this is that you spent all this time looking at the proposed legislation, and then what ended up getting passed usually is so different because a senator could throw some oddball thing on it,” Keane said.
Case in point: that unemployment tax provision.
“The unemployment was in it, then it wasn’t in it, and then it was in at the last minute,” Keane said, adding that those refunds took a minimum of 12 weeks to be issued as tax season was underway. Taxpayers with anything unusual on their return waited over a year.
It could be a similar situation this time with final consideration of the deal delayed by objections from some Senate Republicans looking to offer last-minute amendments.
The Senate is currently debating a separate issue — aid to Ukraine, Israel, and the Indo-Pacific — but they are likely to leave Washington once that process is complete and remain in their states through the President’s Day recess.
That means the earliest the tax bill is likely to be further considered is the week of Feb. 26. Even then, it remains unclear if Senate Majority Leader Chuck Schumer will move to consider the package as-is or accede to the push for amendments. If the bill is opened to changes, it would undoubtedly delay the process even further and could even kill the deal entirely.
Election year politics could also sink the bill and further complicate the picture for tax preparers and filers. Influential Sen. Chuck Grassley (R-Iowa) recently raised eyebrows and cast doubt on chances for passage when he told a Semafor reporter he was worried the accord could make President Joe Biden “look good.”
“Congress’ major concern is not the convenience of tax preparers,” Weinberger said. “The politics tends to govern over common sense deadlines.”
For taxpayers not impacted by the proposed legislation, experts say go ahead and file. But for everyone else, it might be worth waiting a bit.
“I wouldn’t rush into filing tax returns right now, to be honest with you,” Pon said.
