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Congress extends some key individual, business tax benefits

Just in time to avoid a government shutdown, the federal government this week approved new spending bills that extend and change some important tax benefits for both businesses and individuals.

Here’s a look at some of the key changes from the Further Consolidated Appropriations Act, 2020. These will go into effect right around the two year anniversary of the passage of the sweeping Tax Cuts and Jobs Act in December 2017. 

Affordable Care Act Taxes: The spending bills scrapped key taxes that help fund the Affordable Care Act including excise taxes on high cost employer-sponsored health coverage (also known as “Cadillac Plans”) and taxes on medical devices.

FMLA Tax Credit: The bills extend through year end 2020 the Employer Credit for Paid Family and Medical Leave that was enacted as part of the TCJA. Learn more details about the credit here. 

Work Opportunity Tax Credits: The bills extend WOTC through year end 2020. The maximum credits range from $2,400 for the general target groups all the way to $10,000 for certain qualified veterans and Welfare-to-Work employees. You can learn more about the credit here.

Empowerment Zones/Indian Employment Credit: The bills also extend through year end 2020 both the Empowerment Zone tax credits and the accelerated depreciation afforded to businesses on Indian reservations. Read more about Empowerment Zones here.

Alcohol Excise Taxes: The Tax Cuts and Jobs Act reduced several taxes on brewers, vintners and distillers. They were set to expire Dec. 31, 2019 but the new bills extend them another year. Learn more about the benefits here.

New Market Tax Credits: The bills extended the New Market Tax Credits program, intended to spur investment in economically depressed areas, through Dec. 31, 2020.

Tax Cuts and Jobs Act Fixes: The bills include several fixes to the TCJA, including changes to the so-called kiddie tax and church parking tax.

 

  • Church Parking Tax: This is an important change for nonprofits. The bills eliminate the so-called “church parking tax,” an unintended consequence of the TCJA’s attempt to treat employee fringe benefits of C Corporations and tax-exempt entities in the same manner. The unintended effect had required church and some other nonprofit employees to pay tax on reserved parking spaces.
  • Kiddie Tax: The application of the estates and trusts tax rate to certain unearned income of children – the so-called “kiddie tax” – has been reverted to the prior use of the parents’ tax rate for tax years beginning after 2019. The change had had the unintended consequence of increasing the tax on the unearned income – such as military death benefits – of children in low-income families.
  • Retail Glitch: The bills, unfortunately, do not fix the so-called retail glitch that impacts McDonald’s Owner/Operators. The TCJA left leasehold improvement property outside of the category of 15-year recovery property for depreciation purposes, keeping it in the 39-year recovery category and therefore not eligible for 100% bonus depreciation. 

 

Medical Expenses Deduction: The TCJA allowed taxpayers to deduct qualifying medical expenses that exceed 7.5% of their 2018 adjusted gross income. The threshold increased to 10% in 2019 but the bills now keep it at the 7.5% level for 2019 and 2020. 

Tuition and Fees Deduction: This deduction, which expired as the end of 2017, has been extended through year end 2020. It allows parents who have a child in college to deduct up to $4,000 a year in higher-education tuition costs and other expenses.

Mortgage Insurance Premium Deduction: The bills extend the deduction for the cost of premium mortgage insurance (PMI) for homes and vacation homes. The provision had expired but was renewed retroactively for 2017 and extended to 2020.

Retirement Plan Changes: The SECURE Act of 2019 includes major changes for 401(k) plans and IRAs including:

  • Increasing the age after which required minimum distributions from certain retirement accounts must occur from 70½ to 72.
  • Ending the 70½ age limit for contributions to an IRA
  • Allowing distributions for a qualified birth or adoption that are exempt from the early-withdrawal penalty
  • Tax incentives meant to encourage auto-enrollment in qualified retirement plans

These are just some of the changes in the 1,700-page bill. Please contact us to learn more or with any questions you have on the changed and extended tax benefits.

Andrew Desiderio, CPA, is a senior manager at Concannon Miller, a CPA and business consulting firm in Hanover Township, Northampton County. He can be reached at adesiderio@concannonmiller.com 

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