Congress Approves Federal Spending Bill
Congress recently voted to approve a federal government spending bill that repeals three health care taxes, makes changes to retirement plan rules, extends expired tax provisions, provides disaster tax relief and repeals a provision for tax-exempt organizations. The Further Consolidated Appropriations Act, 2020 was signed into law by President Donald Trump on Dec. 20, 2019.
The three repealed health care taxes are the Sec. 4980I excise tax on certain high-cost employer plans (known as “the Cadillac tax”), the Sec. 4191 medical device excise tax, and the annual fee on health insurance providers in Sec. 9010 of the Patient Protection and Affordable Care Act. The three taxes had been previously either postponed or suspended.
The bill’s retirement plan changes are incorporated from the text of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, passed earlier in the year by the House of Representatives and designed to make it easier for employers to offer retirement plans and to encourage saving for retirement.
Among the changes, the bill increases the age after which required minimum distributions from certain accounts must begin to 72. It also repeals the maximum age for IRA contributions and amends Sec. 408 to reduce the amount of deductible charitable IRA contributions allowed to taxpayers over 70½ by the aggregate IRA contribution deductions allowed to them after they turn 70½.
The bill modifies the requirements for multiple-employer plans to allow unrelated employers to join in the same plan, as well as reduces Pension Benefit Guaranty Corporation premiums for certain multiple-employer defined plans of cooperatives and charities. In addition, it allows consolidated filings of Forms 5500, Annual Return/Report of Employee Benefit Plan, for similar plans.
Benefits for workers include making it easier for part-time employees to participate in elective deferrals and the allowance of certain home health care workers to contribute to a defined contribution plan or IRA. Certain expenses associated with registered apprenticeship programs also now count as qualified higher education expenses for purposes of Sec. 529.
Changes also allow penalty-free distributions from qualified retirement plans and IRAs for births and adoptions, and the “kiddie tax” of Sec. 1(j)(4) is repealed. The bill also requires beneficiaries of IRAs and qualified plans to withdraw all money from inherited accounts within 10 years.
Additionally, the Sec. 6651 failure-to-file penalty is increased to $435.
The bill also extends expired tax provisions through 2020, including:
- Sec. 108(a)(1)(E), which excludes from gross income the discharge of qualified principal residence indebtedness income
- Sec. 163(h)(3), which treats mortgage insurance premiums as qualified residence interest
- Sec. 213(f)’s 7.5 percent adjusted-gross-income floor for medical expense deductions
- Sec. 222, which provides an above-the-line deduction for qualified tuition and related expenses
Various incentives for employment and economic growth and for energy production and efficiency were also extended.
Additionally, credits that were scheduled to expire at the end of 2019 were extended, including:
- Sec. 45D’s new markets tax credit
- Sec. 45S’s employer credit for paid family and medical leave
- Sec. 51’s work opportunity credit
- Sec. 35’s credit for health insurance costs of eligible individuals
Tax relief for victims of natural disasters is also provided to those affected by disasters occurring in 2018, 2019, and up to 30 days after enactment of the bill. Eligible taxpayers are able to make withdrawals from retirement plans and certain taxpayers affected by federally declared disasters are allowed automatic 60-day filing extensions.Eligible employers will be able to receive an employee retention credit equal to 40 percent of wages paid to an employee during the time the employer’s business is not operating due to a natural disaster for up to 150 days after the disaster. In addition, the bill implements special rules for personal casualty losses related to disasters and for determining earned income for purposes of the Sec. 32 earned income tax credit.
Parking as UBTI
The bill also repeals the requirement of tax-exempt organizations that provide qualified transportation fringe benefits or parking to employees to pay unrelated business income tax on the amount by which a deduction is not allowable under Sec. 274.
For more information, visit the IRS website at www.irs.gov.