Overview
Title
To amend the Internal Revenue Code of 1986 to provide a tax credit for investors in start-up businesses, to provide a credit for wages paid by start-up businesses to their first employees, and for other purposes.
ELI5 AI
The PROGRESS Act is like a magic helper for new businesses and their friends who give them money. It gives those friends a little money back for helping out, and it also gives the new business a bonus when they start paying their first workers.
Summary AI
The PROGRESS Act aims to amend the Internal Revenue Code to support startup businesses. It introduces a tax credit for investors who put money into these startups, encouraging financial backing by providing them with a potential tax saving. Additionally, it offers a credit to startup businesses for the wages paid to their first employees, helping them manage early-stage employment costs. This bill is designed to stimulate growth and encourage investment in new business ventures.
Published
Keywords AI
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Bill Statistics
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Language
Complexity
AnalysisAI
Summary of the Bill
The proposed legislation, titled the Providing Real Opportunities for Growth to Rising Entrepreneurs for Sustained Success (PROGRESS) Act, aims to amend the Internal Revenue Code of 1986. It introduces two major tax credits: the Small Business Investor Tax Credit and the First Employee Business Wage Credit.
Small Business Investor Tax Credit: This tax credit is designed to encourage investments in start-up businesses. Taxpayers investing in qualifying small business entities can receive a credit calculated based on either a percentage of their investment or considerations of prior year's credits. Specific eligibility criteria are laid out, including conditions related to investment types, entity ownership, wage payments, and certification processes.
First Employee Business Wage Credit: Aimed at small businesses hiring their first full-time employee, this credit allows businesses to claim 25% of the wages paid to this employee, subject to a cap. The bill specifies how this credit can be used, including an option to apply it against payroll taxes.
Significant Issues
There are several issues raised by the bill, primarily surrounding its complexity and potential for unintended consequences:
Complexity and Clarity: The bill's language is heavily laden with technical jargon and numerous cross-references to other sections of the Internal Revenue Code. This complexity may make it challenging for small businesses and investors to understand their eligibility and the processes for claiming the credits, thereby potentially excluding those without deep tax expertise.
Definition Ambiguity: Terms like "qualified active investor" and "material participation" lack clarity, which could lead to varying interpretations and inconsistent application of the credits. This ambiguity might complicate determinations of eligibility.
Cost-of-Living Adjustments: The provisions for annual adjustments based on cost-of-living introduce further complexity. Without clear guidance, these adjustments may lead to disputes and affect financial planning for businesses.
Certification and Administrative Burden: The requirement for business entities to certify their qualification for these credits imposes significant administrative burdens. The necessity of providing detailed certifications might deter some businesses from pursuing these credits.
Impact on the Public
Broadly, the bill proposes financial incentives to spur investment in start-ups and support the employment of initial employees in new businesses. If effectively implemented, it could stimulate economic activity, support job creation, and foster innovation by providing crucial financial relief to burgeoning enterprises.
Impact on Specific Stakeholders
Start-Up Investors: Investors in start-ups may benefit from the tax credits, which provide a potential avenue for reducing tax liabilities. However, the complexity of the eligibility criteria might deter some investors.
Small Businesses: New businesses stand to gain from tax credits related to early investments and initial employee hires. However, the administrative requirements and the need for precise certifications might pose challenges, particularly for small businesses with limited resources.
Tax Advisors and Legal Professionals: The intricate nature of the bill necessitates expertise from tax professionals to navigate and interpret the provisions. This could result in increased demand for their services.
Employees in Start-Ups: By providing financial incentives to hire and retain initial employees, the bill may foster job security and expansion opportunities within start-up businesses. However, the exclusion criteria for certain types of employees might lead to perceived inequities.
Overall, while the PROGRESS Act aims to stimulate growth in the entrepreneurial sector, careful attention to the complexities and administrative demands of the bill will be necessary to ensure that its benefits are broadly accessible and equitably distributed.
Financial Assessment
The PROGRESS Act introduces financial mechanisms aimed at bolstering startup businesses through tax credits, which have significant implications for investors and business owners. These mechanisms are detailed in different sections of the bill and encompass various financial terms and limits.
Small Business Investor Tax Credit
The bill provides a tax credit for investments in qualifying startups. A taxpayer can claim a credit equal to the lesser of 10% of a qualified investment or 50% of the investment reduced by previous credits claimed for the same investment. Notably, the amount of credit cannot exceed $10,000 annually, with potential increases due to cost-of-living adjustments. These cost-of-living adjustments can lead to complexities, as small businesses might struggle to predict how their credits will scale yearly due to potential disputes over calculation methods, as highlighted in the issues section. The reliance on intricate calculations and potential reductions for loans exceeding the prime rate could further complicate the compliance process, particularly for those without extensive financial backgrounds.
First Employee Business Wage Credit
This section introduces a wage credit allowing qualifying startups to claim 25% of the qualified wages they pay to their first employees. The credit is capped at $10,000 per year, with potential increases for inflation. However, businesses can only utilize this benefit if they navigate the complexities of certification and reporting processes. The exception for qualified active investors and 5-percent owner-employees being excluded from receiving wage credits might create perceptions of favoritism, potentially leading to unequal access to financial benefits as discussed in the issues. The optional election to apply this credit against payroll taxes could introduce unintended fiscal impacts, potentially skewing the intended financial support for startups.
Cost-of-Living Adjustments
Both tax credits discussed in the act incorporate cost-of-living adjustments to increase the maximum amounts over time. For example, the $10,000 credit limit could rise based on inflation measures, affecting long-term financial planning for businesses. However, the complex provisions surrounding these adjustments may result in misunderstandings or disputes, particularly if clear guidelines are not established. This could prove burdensome for small to medium-sized businesses, which may lack the resources to adapt swiftly to these changes annually.
Implications and Administrative Burden
The bill's reliance on certifications for eligibility creates an added administrative layer for startups aiming to leverage these tax credits. Businesses are required to certify their status as qualifying business entities to both investors and the IRS, which could pose a significant compliance burden. The administrative process may demand time and effort that small businesses could find challenging to manage efficiently. Furthermore, the requirement for businesses to process complex calculations regarding tax credits and investment rules adds to the difficulty.
Conclusion
Overall, the PROGRESS Act seeks to stimulate investment in startups through financial incentives and tax credits. While these measures have the potential to offer substantial support, their complexity and administrative demands pose challenges that could limit accessibility for small business owners and investors. The bill emphasizes financial growth but requires cautious navigation to avoid pitfalls related to cost-of-living adjustments and the potential for perceived inequalities in credit allocation.
Issues
The definition of 'qualified active investor' across Sections 2 and 3 is vague due to a lack of specific criteria or thresholds for 'material participation,' potentially leading to broad interpretations and inconsistent application, thus affecting who can take advantage of the tax credits.
The complex language and heavy use of cross-references within Sections 45BB and 45CC make it difficult for small businesses and investors to understand their eligibility or the credit claiming process, potentially excluding those without a strong grasp of tax laws.
The provisions regarding cost-of-living adjustments in Sections 45BB(b)(2) and 45CC(f) introduce complexity and could lead to disputes without clear guidance, affecting how the credits scale annually, particularly impacting small to medium-sized business financial planning.
Section 2 and 45BB's reliance on intricate calculations and potential reductions for loans exceeding the prime rate introduces significant complexity and compliance burdens for businesses seeking to qualify for the Small Business Investor Tax Credit.
In Section 3, potential favoritism could arise in the exception for qualified active investors and 5-percent owner-employees, who are excluded from receiving wage credits, possibly reflecting unequal benefits across employee demographics.
The potential for administrative burden due to the certification process in Sections 45BB(d)(4) and 45CC(d)(2) raises concerns about the ease of compliance for businesses and may strain resources for both entities and the IRS, affecting the overall effectiveness and accessibility of the credits.
Sections 45BB(c)(2) and 45CC(c)(2) introduce confusion regarding the rules for the inclusion of related persons and high ownership thresholds, deviating from commonly accepted standards and potentially creating room for misuse or ambiguity in determining qualification.
The 'First Employee Business Wage Credit' as described in Section 3 may lead to unintended fiscal impacts or potential waste through the optional election to apply the credit against payroll taxes, thereby potentially distorting the intended financial support mechanism for start-up businesses.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of this bill states its short title, which is the “Providing Real Opportunities for Growth to Rising Entrepreneurs for Sustained Success (PROGRESS) Act.”
2. Small business investor tax credit Read Opens in new tab
Summary AI
The Small Business Investor Tax Credit section introduces a new tax credit for individuals who invest in qualifying small businesses. It outlines rules for the amount and eligibility of the credit, including specific criteria such as ownership and wage requirements, and prescribes how investments through partnerships or loans are handled. The changes take effect for investments made in tax years starting after December 31, 2024.
Money References
- “(b) Credit amount.—For purposes of this section— “(1) IN GENERAL.—The term ‘credit amount’ means, with respect to any qualified investment in a qualifying business entity, the lesser of— “(A) 10 percent of the amount of the qualified investment determined under subsection (c)(3) for the taxable year, or “(B) an amount equal to— “(i) 50 percent of such qualified investment, reduced (but not below zero) by “(ii) the amount of the credit determined under this section with respect to such qualified investment of the taxpayer for all preceding taxable years. “(2) OVERALL DOLLAR LIMITATION.
- “(A) IN GENERAL.—The credit amount determined under paragraph (1) with respect to any qualified investment of a taxpayer in a qualifying business entity for any taxable year shall not exceed the lesser of— “(i) $10,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (e)(2)), or “(ii) an amount equal to— “(I) an amount equal to 5 times the amount under clause (i) for the taxable year, reduced (but not below zero) by “(II) the amount of the credit determined under this section with respect to such qualified investment of the taxpayer for all preceding taxable years.
- “(C) APPLICABLE AMOUNT.—For purposes of this paragraph, the term ‘applicable amount’ means, with respect to any taxable year in which a qualified investment is made— “(i) in the case of an individual not described in clause (ii), $100,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (e)(2)), and “(ii) in the case of an individual who is a married individual filing a joint return or who is a head of household (as defined in section 2(b)) for the taxable year, an amount equal to 2 times the amount in effect under clause (i) for the taxable year. “(D) RULES FOR DETERMINING AVERAGE TAXABLE INCOME.—For purposes of this paragraph— “(i) a married individual filing a separate return of tax for any taxable year shall include the adjusted taxable income of their spouse in computing the individual's average adjusted taxable income for any period unless the Secretary determines that the spouse's information is not available to the individual, and “(ii) the Secretary shall prescribe rules for the determination of average adjusted taxable income in cases where the individual had different filing statuses for the 3 taxable years described in subparagraph (B).
- (e) Definitions and special rules.—For purposes of this section— “(1) RELATED PERSONS.—A person shall be treated as related to another person if the person bears a relationship to such other person described in section 267(b), except that section 267(b) shall be applied by substituting ‘5 percent’ for ‘50 percent’ each place it appears. “(2) COST-OF-LIVING ADJUSTMENTS.—In the case of any taxable year beginning after 2025, the $10,000 amount under subsection (b)(2)(A)(i) and the $100,000 amount under subsection (d)(5)(C)(i) shall each be increased by an amount equal to— “(A) such dollar amount, multiplied by “(B) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘2024’ for ‘2016’ in subparagraph (A)(ii) thereof.
- If any increase in such $10,000 amount is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100 and if any increase in such $100,000 amount is not a multiple of $1,000, such increase shall be rounded to the next lowest multiple of $1,000.
45BB. Small Business Investor Tax Credit Read Opens in new tab
Summary AI
The Small Business Investor Tax Credit provides a tax credit to taxpayers who invest in qualifying business entities. The credit amount is based on the lesser of 10% of the investment or a reduced amount considering past credits, with specific limitations, including an overall cap of $10,000 adjusted for cost-of-living and conditions related to interest rates and eligible entities.
Money References
- (2) OVERALL DOLLAR LIMITATION.
- — (A) IN GENERAL.—The credit amount determined under paragraph (1) with respect to any qualified investment of a taxpayer in a qualifying business entity for any taxable year shall not exceed the lesser of— (i) $10,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (e)(2)), or (ii) an amount equal to— (I) an amount equal to 5 times the amount under clause (i) for the taxable year, reduced (but not below zero) by (II) the amount of the credit determined under this section with respect to such qualified investment of the taxpayer for all preceding taxable years.
- , the term “applicable amount” means, with respect to any taxable year in which a qualified investment is made— (i) in the case of an individual not described in clause (ii), $100,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (e)(2)), and (ii) in the case of an individual who is a married individual filing a joint return or who is a head of household (as defined in section 2(b)) for the taxable year, an amount equal to 2 times the amount in effect under clause (i) for the taxable year.
- , the $10,000 amount under subsection (b)(2)(A)(i) and the $100,000 amount under subsection (d)(5)(C)(i) shall each be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “2024” for “2016” in subparagraph (A)(ii) thereof. If any increase in such $10,000 amount is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100 and if any increase in such $100,000 amount is not a multiple of $1,000, such increase shall be rounded to the next lowest multiple of $1,000. (3) RULES RELATING TO ENTITIES.— (A) SOLE PROPRIETORSHIPS.—If a taxpayer carries on 1 or more trades or businesses as sole proprietorships, all such trades or businesses shall be treated as a single entity for purposes of applying this section. (B) APPLICATION TO DISREGARDED ENTITIES.—In the case of any entity with a single owner which is disregarded as an entity separate from its owner for purposes of this title
3. First Employee Business Wage Credit Read Opens in new tab
Summary AI
The First Employee Business Wage Credit is a new tax credit for small businesses that hire their first full-time employee, allowing them to claim 25% of the wages they pay that person, up to a limit of $10,000 (adjusted annually for inflation), on their taxes starting after December 31, 2024. This credit can also be applied against payroll taxes, and there are specific rules regarding which businesses and wages qualify, as well as how the credit can be claimed and used in conjunction with other tax credits.
Money References
- “(b) Dollar limitations.
- — “(1) IN GENERAL.—The amount of the credit determined under subsection (a) with respect to any qualifying business entity for any taxable year shall not exceed the lesser of— “(A) $10,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (f)), or “(B) the excess (if any) of— “(i) an amount equal to 4 times the amount under subparagraph (A) for the taxable year, over “(ii) the amount of the credit determined under this section with respect to such entity for all preceding taxable years.
- “(f) Cost-of-Living adjustments.—In the case of any taxable year beginning after 2025, the $10,000 amount under subsection (b)(1)(A) shall be increased by an amount equal to— “(1) such dollar amount, multiplied by “(2) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘2024’ for ‘2016’ in subparagraph (A)(ii) thereof.
- If any increase in such amount is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.
45CC. First Employee Business Wage Credit Read Opens in new tab
Summary AI
Under Section 45CC, qualifying business entities can receive a tax credit equal to 25% of the wages they pay to their first employees, with a cap based on certain conditions and the size of the business. The section also includes detailed rules on how this credit is calculated, who is eligible, and how businesses can apply this credit against payroll taxes or certify their eligibility.
Money References
- (b) Dollar limitations.
- — (1) IN GENERAL.—The amount of the credit determined under subsection (a) with respect to any qualifying business entity for any taxable year shall not exceed the lesser of— (A) $10,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (f)), or (B) the excess (if any) of— (i) an amount equal to 4 times the amount under subparagraph (A) for the taxable year, over (ii) the amount of the credit determined under this section with respect to such entity for all preceding taxable years. (2) NO CREDIT BY REASON OF COST-OF-LIVING ADJUSTMENT AFTER OVERALL LIMIT FIRST REACHED.—No
- (f) Cost-of-Living adjustments.—In the case of any taxable year beginning after 2025, the $10,000 amount under subsection (b)(1)(A) shall be increased by an amount equal to— (1) such dollar amount, multiplied by (2) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “2024” for “2016” in subparagraph (A)(ii) thereof. If any increase in such amount is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.