House Democrats are offering several concessions to Republicans on pandemic-related tax items, including a temporary fix to the thorny problem of how teleworkers and others who work in multiple states during the pandemic should be taxed.
That pitch is part of a collection of tax proposals in a document obtained by CQ Roll Call that grew out of talks on a broader relief package between Treasury Secretary Steven Mnuchin and Speaker Nancy Pelosi.
The two top negotiators tasked committees of jurisdiction to begin hammering out compromises on lower-hanging fruit while they continue discussions on major hangups, like the amount of state and local government aid and business liability protections.
The House Ways and Means offer sheet amounts to a litany of provisions Republicans and Democrats agree on with one exception: House Democrats’ proposal to roll back net operating loss provisions that were in the roughly $2 trillion March coronavirus relief law. Democrats say those breaks, worth about $150 billion, are a giveaway to wealthy households.
"Reserve discussion on NOL provisions," the document says.
The proposal also is silent on the issue of whether direct payments to households of up to $1,200 per person will also include undocumented immigrants without a Social Security number. The White House and Republicans have said Democrats’ proposal to require only a taxpayer identification number is a nonstarter.
The one-page summary dated Oct. 20 was confirmed by sources familiar with the talks who spoke on condition of anonymity.
A spokeswoman for House Ways and Means Committee Democrats declined to confirm the document’s authenticity, but didn't dispute it either.
“While I’m not able to confirm the document, I can say that Democrats are serious about providing small businesses and workers with the meaningful relief they desperately need,” the committee’s communications director, Erin Hatch, wrote in an email. She also criticized Senate Republican’s “unwillingness to come to the table and work with us” on the proposals.
Ways and Means Democrats have proposed a meld of provisions they’ve included in larger House-passed relief packages as well as Senate GOP relief legislation (S 4318) introduced by Finance Chairman Charles E. Grassley, R-Iowa, in July that ultimately didn’t get a vote.
A spokesman for Senate Finance Republicans didn't immediately respond to a request for comment.
Proposed concessions to the Senate include the remote worker fix, which was included in Grassley's COVID-19 bill modeled on bipartisan legislation introduced by Senate Majority Whip John Thune, R-S.D., and Sherrod Brown, D-Ohio.
The provision would treat wages earned for remote work performed by employees as taxable only in their employer’s primary location during the pandemic. That way, businesses with workers who left their urban locales once their offices shut down won’t face tax in the state or local jurisdiction those employees are working from temporarily.
States like Massachusetts and New York have tried to protect their tax bases given large numbers of workers have fled major cities for more bucolic locations in neighboring states.
But the Ways and Means proposal leaves out a major piece of the prior remote tax legislation, and one that has passed the House in prior years: creation of a uniform standard across states so that nonresident employees don’t face tax in their employers' primary locations unless they spend more than 30 days a year working there.
Observers say the New York delegation, including Senate Minority Leader Charles E. Schumer has long blocked that legislation since New York applies a shorter 14-day threshold before taxing nonresidents who work there.
Leaving out the broader change and simply deeming wages paid to employees working elsewhere during the pandemic as taxable in their employers’ taxing jurisdiction could avoid such regional complications. However, states like New Hampshire, which doesn’t have an income tax and is fighting Massachusetts’ efforts to tax employees working remotely in the Granite State, might react negatively.
Business tax credits
According to the proposal, House Democrats also want to include a beefed-up employee retention tax credit that was in their $2.4 trillion package the House passed Oct. 1. The tax credit encourages hard-hit companies to keep employees on their payroll by providing credits of up to $36,000 for each employee retained. The credit was established in the March relief law but was limited to $5,000.
House Democrats also would accept a payroll tax credit covering up to 50 percent of employer expenses for COVID-19 testing, protective personal equipment, cleaning supplies, and workplace reconfiguration including technology improvements. A similar tax credit was in Grassley’s bill and legislation introduced in July by Rep. Tom Rice, R-S.C.
House Democrats also are proposing to keep their own 50 percent refundable tax credit for up to $50,000 in expenses associated with rent, mortgages or utilities that was included in their $3.4 trillion aid package that passed the House in May.
The Ways and Means proposal would accept a Senate GOP-backed expansion of work opportunity tax credits, which give employers an incentive to hire certain categories of workers, to companies that hire those who’ve lost their jobs due to the pandemic and are receiving unemployment benefits. Democrats said they want “a few modifications” to the Republican proposal, including to clarify businesses’ ability to claim the credit for workers they’ve brought back from furlough, for example.
House Democrats also want to allow businesses to deduct expenses they’ve paid for out of Paycheck Protection Program funds, which are forgivable loans for qualified small businesses. FiscalNote, the parent company of CQ Roll Call, has received a loan under the program. That provision has GOP support in the Senate as well, though the Treasury Department has opposed giving PPP recipients that benefit.
Their proposal also would retain provisions included in the May bill, as well as the Senate’s July bill, that would let households with flexible spending accounts for health care and dependent care expenses carry over unused balances into 2021. That would give FSA holders a break on “use it or lose it” rules that cause them to forfeit unspent funds after the plan year ends.