OMAHA (DTN) -- Biofuel producers will get an extension to tap into the 45Z Clean Fuels Production Tax Credit as part of the massive tax-cut package released Monday by Congress.
Multiple House committees this week are scheduled to mark up and vote on a budget-reconciliation bill that would primarily extend President Donald Trump's tax-cut package from his first term. The legislation is expected to cut spending in several areas, such as rolling back large pieces of the 2022 Inflation Reduction Act passed by Democrats.
The House Ways & Means Committee on Monday released a 389-page package to extend the current tax rates for families and businesses. The bill also increases the Child Tax Credit and improves the state and local taxes (SALT) deduction. Ways & Means will hold its markup on the tax package starting Tuesday afternoon.
The House Energy and Commerce Committee on Tuesday will vote to rescind several provisions of the Inflation Reduction Act meant to spur renewable energy or reduce greenhouse gas emissions. As part of that package, Energy and Commerce also will vote to repeal higher fuel-efficiency standards for semi-trucks, pickups and passenger cars set by the Biden administration. That committee will also detail ways to cut Medicaid costs.
The House Agriculture Committee is expected by Monday evening to release its text proposal that is expected to increase spending for farmers by boosting the safety net in the commodity title of the farm bill and offering more incentives or options for farmers to buy crop insurance. The House Agriculture Committee will also detail cuts to the Supplemental Nutrition Assistance Program (SNAP) and shift some cost burden to states as a way to help pay for the package. The Ag Committee is set to begin its markup on Tuesday at 6:30 CDT.
Key provisions in the tax bill that would affect farmers include:
45Z EXTENSION
Biofuel producers haven't had much of a chance to take advantage of the Clean Fuels Production Credit known as 45Z. Under the bill, the tax credit would be extended until the end of 2031. The bill also modifies the 45Z to prevent the use of certain foreign feedstocks, such as used cooking oil from China. Fuels for the tax credit under the bill would be limited to feedstocks produced or grown in the United States, Canada or Mexico. The bill would also limit federal agencies from attributing any greenhouse gas emissions to "indirect land use change." There is also a special provision that opens up the 45Z tax credit to transportation fuels derived from animal manure.
TAX RATES
In general, the tax package introduced by Ways & Means keeps tax brackets from the 2017 tax bill, which stretches from 10% on individuals making $17,000 a year up to 37% for individuals making $626,350 or higher. People who are married filing jointly would hit the 37% bracket with incomes at $751,600 or higher.
STATE AND LOCAL TAXES (SALT) DEDUCTION
A major sticking point for Republicans from high-tax states, the text would increase the current $10,000 cap on state and local taxes to $30,000 for taxpayers with less than $400,000 of adjusted gross income, unless they are married and filing a separate return, then the SALT deduction falls to $15,000.
SECTION 199A
A 20% qualified business deduction, known as Section 199A, will remain in place. The deduction was created to offer businesses some balance that corporations received from a lower tax rate, but the deduction also has limits for grain producers, depending on who buys their grain.
A USDA report last year looking at expiring tax credits spotlighted the importance of the 20% deduction on qualified business income. If the provision were to expire, it would increase taxes for about 45% of farm households with an average increase in tax liability of $2,464 per farm. Larger farm households would be hit even harder if the provision were to sunset.
A 9% deduction for qualified income for farmer cooperatives also would remain in law.
The deduction is limited to 50% of W-2 wages paid by an individual producer and a cooperative during a calendar year.
ESTATE TAXES
While some lawmakers have pushed to end estate taxes, the reconciliation bill would increase the estate and gift tax exemptions. Currently, the estate tax exemption is $13.99 million. The House GOP proposal would increase the exemption to $15 million for 2026 and index it to inflation for later tax years.
If the estate tax were to roll back to pre-2017 levels, the percentage of farms affected would increase from .3% to 1% of all farms, and the level of federal estate taxes paid by farmers would more than double from roughly $572 million in 2023 to $1.2 billion, USDA projected.
CHILD TAX CREDIT
Under the bill, the Child Tax Credit would increase from $1,000 to $2,500 per child for tax years 2025-2028, then drop to $2,000 per child for future years. The tax credit would phase out for couples filing jointly with incomes of $400,000 or higher, or couples filing separately and heads of household with $200,000 or higher incomes.
TIPS, OVERTIME AND SOCIAL SECURITY
Meeting a campaign promise made by President Trump, the bill would exempt income from tips with certain exclusions through 2028. Another provision exempts worker overtime pay from taxes with certain exceptions. The bill also includes a provision that would provide a $4,000 a year income exemption for seniors, but the bill does not specifically eliminate taxes on Social Security income.
Also see, "House Ag Chair Plans to Boost Farmer Safety Net in Budget Reconciliation Bill," https://www.dtnpf.com/…
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