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Congress Passes Tax Provision Critical for Medtech R&D

The provision would update law which states that R&D costs paid or incurred after Dec. 31, 2021, are required to be deducted over five years.

February 1, 2024

4 Min Read
Senator Ron Wyden
Drew Angerer / Getty Images News via Getty Images

In the House of Representatives first major bipartisan win of the year, congress recently passed the Tax Relief for American Families and Workers Act of 2024 which would, among other high-profile provisions, restore a set of corporate tax breaks related to research and development (R&D).

The provision would update current law which states that research or experimental costs paid or incurred after Dec. 31, 2021, are required to be deducted over five years. If approved, the updated law would delay the date when taxpayers would have to begin deducting those expenses over five years until Dec. 31, 2025, instead allowing immediate deductions until that date.

In a statement from the Advanced Medical Technology Association (AdvaMed), president and CEO Scott Whitaker conveyed the importance of updating the tax law.

“R&D is critical to the medtech innovation upon which so many American patients rely,” Whitaker said. “The way R&D expensing is handled under current tax law is especially challenging for the small and emerging companies that make up more than 80% of the medtech industry. This critical change to tax policy will unquestionably lead to greater innovation on behalf of the patients our industry serves.”

In a letter to lawmakers in January, Whitaker cited an example of how small businesses are being impacted by the current five-year deduction, highlighting Alva Health.

Alva Health said, “If these rules are not repealed, businesses, including [ours], will be faced with unforeseen financial burdens and uncertainty around the business's near-term viability. For [our company] specifically, Section 174 will result in a significant reduction of its clinical operations, delays in FDA validation studies and commercialization, and ultimately, delays in getting our lifesaving stroke detection product into the hands of patients in need.”

Other industry organizations echoed AdvaMed’s sentiments and praised the House for approving the bill.

The Semiconductor Industry Association said, “The Tax Relief for American Families and Workers Act would strengthen the US semiconductor industry by promoting innovation and removing impediments to business with one of our top trading partners, Taiwan. The legislation restores immediate domestic R&D expensing and aims to resolve tax matters between the US and Taiwan, two provisions critical to boosting the competitiveness of the US semiconductor industry and reaching the full potential of the CHIPS and Science Act. We applaud the House for approving the bill with strong, bipartisan support and urge the Senate to swiftly follow suit.”

The National Association of Manufacturers also noted, “We cannot afford to wait. The cost of delay or inaction will be measured in lost jobs and slower wage growth, along with investment ceded to other countries. Passing this legislation, however, will ensure that small manufacturers, who are the backbone of communities and foundation of America’s supply chain, can continue driving our nation forward.”

Challenges, however, remain before the bill hits the president’s desk. In fact, even getting the bill to the House floor for a vote was rife with political hurdles. The bill was brought to the floor under special expedited procedures that required a two-thirds majority for passage, a maneuver that allowed proponents of the bill to skate around representatives who could have otherwise blocked it over policy and political objections.

While the bill eventually passed 357 to 70 in the house, it now faces resistance from the Senate over different sections, including the expansion of the child tax credit, which has some Senate Republications concerned it would “discourage work”, wanting to see it amended in the Senate.

“I’m sure there are going to be a number of issues, like raised yesterday in the House, that didn’t get resolved,” said Senator Michael D. Crapo (R-ID). “I’m guessing that a lot of those kinds of issues will come up, and we’ll have to work through them.”

While pundits were unimpressed with the bills likelihood of coming together, Senator Ron Wyden, (D-OR) said in a statement that its continued momentum is a good sign.

“Most prognosticators would have told you as recently as a month ago that this bill was destined to die in negotiations or collect dust on a shelf if it ever got introduced,” Wyden said. “Given the sorry state of our political climate, it’s a real victory to have such strong momentum behind this bill that will help 16 million American kids from low-income families get ahead.”

Currently, no date has been disclosed as to when Senate members will vote on the bill. If approved in the Senate, the bill will go to President Biden to be signed into law.

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