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2019 Tax Provisions: Extenders Bill, ACA Tax Repeal, SECURE Act
December 23, 2019
Tax Advisor
Averting another government shutdown, President Trump signed a $1.4 trillion spending package which will fund the government until September 30, 2020. As part of the spending package, there are several tax provisions including an ‘extenders’ bill, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) and the repeal of several Affordable Care Act (ACA) excise taxes. Below are the highlights from the three tax portions of the provision.
Tax Extenders
This series of provisions expired at the end of 2017, 2018 or set to expire at the end of 2019, have now been retroactively renewed through 2020. It’s worth seeing whether you can go back and amend your tax return for any of these renewed provisions.
Cancellation of Home Debt
Up to $2 million ($1 million for married, filing separately) of qualified principal residence debt can be discharged free of income tax.
Mortgage Insurance Premium (PMI) Deduction
Continued allowance for a tax deduction for the cost of PMI for homes and vacation homes.
Medical Expense Deduction
This extender keeps the old 2018 7.5% floor through 2020.
Higher Education Tuition
Allows a deduction of up to $4,000 of expenses for adjusted gross income (AGI) under $65,000 ($130,000 for joint filers).
Non-business Energy Property Credit
A personal tax credit for making a home more energy-efficient. Up to $500 (lifetime) credit is allowed for residential energy improvements including heat pump, furnaces, windows, central air conditioners and hot water heaters.
Energy-Efficient Homes Credit
Homebuilders can claim a credit of up to $2,000 for the construction of a new energy-efficient home that meets certain criteria.
Energy-Efficient Commercial Buildings Deduction
Under Section 179D, up to $1.80 per square foot can be immediately expensed for installing energy-efficient lighting, heating, cooling, ventilation and hot water systems in commercial buildings.
Family and Medical Leave
Employers that pay their employees at least 50% of their normal pay while the employee is on leave can receive up to 25% credit of the wages paid. The credit is limited to 12 weeks of pay per employee.
Work Opportunity Tax Credits
Employer credits for hiring employees who are members of one or more of the ten targeted groups, including felons, veterans, Supplemental Security Income, long-term unemployment and welfare recipients.
New Market Tax Credits
Incentive program for investors to fund businesses in low-income communities. Provides $5 billion of New Market Tax Credits allocation for 2020 and extends the carry-over of unused credits by one year, through 2025.
Alternative Fuel Credit
Awarded to taxpayers who use non-alcohol alternative fuels that are either sold commercially by the taxpayer or used in the taxpayer’s vehicles for business. Restores the 50 cents per gallon credit for liquefied petroleum, compressed or liquefied natural gas.
Fuel Cell Vehicle Purchase
Restores a credit for purchase of new qualified fuel cell motor vehicles, depending on the weight of the vehicle.
Beer, Wine and Distilled Spirits
Restores the reduced federal excise tax to $3.50 per barrel on the first 60,000 barrels for domestic brewers producing less than 2 million barrels annually; $16 per barrel on the first 6 million barrels for all other brewers and all beer importers; and keeps the excise tax at the current $18 per barrel for barrelage over 6 million.
Controlled Foreign Corporations Look-Through Rule
Allows U.S.-based companies to redeploy their active foreign earnings outside the United States. Payments of interest, dividends, rents and royalties between related controlled foreign corporations will not be treated as foreign personal holding company income.
Affordable Care Act Tax Repeal
The Affordable Care Act (ACA) enacted several excise taxes to pay for the ACA benefits. Three of these excise taxes are now being permanently repealed.
Medical Device Excise Tax
This 2.3% tax on the sale of taxable medical devices expires January 1, 2020.
Cadillac Health Insurance Tax
A 40% excise tax on the most generous employer-provided health insurance plans that exceeded predetermined thresholds.
Health Insurance Provider Fee
This annual fee was imposed on insurers “engaged in the business of providing health insurance” based on the number of net premiums written and will expire January 1, 2021.
SECURE Act
Setting Every Community Up for Retirement Enhancement Act. This has a multitude of changes to retirement plan rules.
Safe Harbor Rules Simplified
401(k) non-elective contribution safe harbor was simplified to provide greater flexibility, improve protections and facilitate plan adoption.
Retirement Plan Start-Up Cost Credit
Eligible small businesses setting up a new workplace plan can claim a 50% credit of necessary eligible startup costs up to $250 per participant, up to a maximum of $5,000 in credits over a three-year period.
New Automatic Enrollment Credit
Small employers who set up plans that automatically enroll employees can receive a $500 tax credit to cover startup costs over the three-year period.
IRA Contributions Age Cap
The 70 ½ year age cap for IRA contributions has been removed. Previously, once taxpayers reached 70 1/2 they were prohibited from making continued contributions (although 401(k) plans never had such limitations). This allows older workers to continue stashing their earned income.
Part-Time Employee Participation
Most plans allowed employers to exclude part-time workers with fewer than 1,000 hours per year from their retirement plans. Now, if employees have over 1,000 hours in a year or over 500 hours over three consecutive years, they cannot be excluded.
Required Minimum Distribution (RMD) Age Increase
RMDs currently begin the year after an individual reaches age 70 1/2. Now taxpayers can wait until age 72 before being forced to take withdrawals from IRAs.
Stretch IRAs
Inherited IRAs could stretch distributions over a beneficiary’s lifetime. Under the new law, non-spouse beneficiaries will have to take the funds in the inherited IRA within ten years from the death of the original account owner.
Annuity Options for Retirement
Annuities can be a valuable tool to turn your retirement savings into a sustainable income source; however, many employers have hesitated to offer this option due to the fiduciary obligations. Under the Safe Harbor, employers have limited liability which may lead to new annuity options in their 401(k) plans.
If you have questions on whether any of these provisions affect your past returns or how they may affect future returns, contact your BMF Tax Advisor to discuss potential implications of these various tax provision changes.
John E. Jenkins?>
CPA
Partner, Taxation Services
330.255.2402
jjenkins@bmf.cpa
Michael A. Hydell?>
CPA, MTax
Senior Manager, Taxation Services
330.255.2456
mhydell@bmf.cpa
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