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There’s no shutdown in the cards: Washington has finally passed a spending bill. The Consolidated Appropriations Act, 2020, includes a wide range of provisions from healthcare tax repeal to extenders.
As expected, the Act included the repeal of three Affordable Care Act-related taxes: the so-called “Cadillac” tax on health insurance benefits, an excise tax on medical devices, and the Health Insurance Tax. The three taxes were originally part of the Patient Protection and Affordable Care Act, more commonly called Obamacare, which was signed into law on March 23, 2010.
The repeal dates for the Obamacare taxes are staggered: The repeals of the excise tax on medical devices and the Cadillac tax kick in beginning January 1, 2020, while the repeal of the Health Insurance Tax is effective in 2021. (You can read more here.)
The bill also includes what Forbes’ Ashlea Ebeling referred to as “seismic” retirement plan changes. The final version consists of the SECURE Act, or Setting Every Community Up for Retirement Enhancement Act of 2019, which passed in the House 417-3, but never made it to a vote in the Senate. Among the highlights:
- The bill increases the age for required minimum distributions (RMD) from individual retirement accounts to 72 (from 70½), and it repeals the prohibition on contributing to a traditional IRA for those age 70½.
- It would allow part-time workers to participate in 401(k) plans.
- It eliminates the so-called “stretch IRA” which allowed beneficiaries of IRAs and qualified plans to withdraw all money from inherited accounts over their lifetime, but now, distributions must be taken with ten years.
- It allows new parents to take distributions from a 401(k), IRA or another qualified retirement plan within a year after a birth or adoption.
Most of the retirement provisions kick in beginning in 2020.
And since we just got around to understanding it, the new version of the kiddie tax introduced the Tax Cuts and Jobs Act (TCJA) has been repealed. The effective date is supposed to begin with the 2020 tax year, but you can elect to have it apply to the 2018 and 2019 tax years (expect guidance from IRS on this).
As I detailed earlier, the bill was expected to extend many expired tax provisions. Those provisions, often referred to as extenders, are now renewed on a short-term basis (and some of them retroactively). Here are some of the highlights:
- If you have canceled debt that is also qualified principal residence indebtedness (in other words, you defaulted on a mortgage that you took out to buy, build, or substantially improve your main home), you were previously able to exclude that amount from income. The provision expired in 2017 but has been renewed.
- The mortgage insurance premium (sometimes called PMI) deduction had also been allowed to expire. It is now extended through 2020.
- The medical expenses deduction 7.5% floor has returned (it was previously bumped to 10%) for 2019 and 2020.
- The above-the-line qualified tuition and related expenses deduction is back and has been extended through 2020.
- The employer credit for paid family and medical leave and the work opportunity credit were slated to expire in 2019 but have been re-upped through 2020.
- A handful of environmentally-related tax breaks, including the biodiesel credit, have been extended.
- And my inbox has been chock-full of emails from happy brewers: federal excise taxes on beer and spirits will remain in place through 2020.
The law tweaked the rules for disaster relief (which had also been changed under the TCJA). Now, taxpayers who were impacted by a major disaster beginning January 1, 2018, and ending 60 days after the date that the law is enacted, can make tax-favored withdrawals from retirement plans (some restrictions apply). And good news for tax professionals and taxpayers: there is now an automatic 60-day filing extension for those taxpayers affected by federally declared disasters. No more watching for the IRS announcement!
And yes, the final version did repeal oh-so-unpopular section 512(a)(7), which had resulted in a tax on employer-provided parking for nonprofit organizations. Under that TCJA provision, employee parking for nonprofits, including churches, had been subject to a 21% unrelated business income tax (UBIT) – but that’s no longer the case.
These are just the highlights. The actual bill is 715 pages long, so there’s truly something for everyone (contraceptives! livestock demographics! racehorses! mine rescues!).
The bill passed the House of Representatives on December 17, 2019, with a vote of 297-120, and the Senate on December 19, 2019, with a vote of 71-21. The bill now goes to President Donald Trump, and he is expected to sign it into law.
You can read the bill here (downloads as a PDF).