Congress Passes Disaster Tax Relief Bill

On September 28, the House of Representatives passed the "Disaster Tax Relief and Airport and Airway Extension Act of 2017".   President Trump signed the bill into law on September 29.  The Act provides temporary tax relief to victims of Hurricanes Harvey, Irma, and Maria.  Some of the key provisions in the Act include:

Employee Retention Tax Credit
The Act provides an employee retention credit for qualified wages paid or incurred to each eligible employee by an eligible employer impacted by Hurricanes Harvey, Irma, and Maria.  For purposes of the retention credit, the following definitions apply:
  • An "eligible employer" is an employer that:
    1. Conducted an active trade or business in a disaster zone on various specified dates:  August 23 for Hurricane Harvey, September 4 for Hurricane Irma, and September 16 for Hurricane Maria, and
    2. The active trade or business was rendered inoperable on any day between one of the dates previously listed and January 1, 2018 because of damage caused by the hurricane.
  • An "eligible employee" is an individual whose principal place of employment for the eligible employer was in one of the designated disaster zones on its respective specified date.
  • "Qualified wages" are wages paid or incurred by an eligible employer to an eligible employee on any day after the respective specified date and before January 1, 2018.  
  • Qualified wages must be paid in the period beginning on the date the trade or business at the employee's principal place of employment immediately before the disaster became inoperable and ending on the date when the trade or business resumed significant operations at that location. 
  • Qualified wages include wages paid to an employee that performs no services, performs services at his or her principal place of employment before significant operations have resumed, or performs services at a location different than the principal place of employment.
The credit is 40% of up to $6,000 of qualified wages paid to each eligible employee (resulting in a maximum credit of $2,400 for each eligible employee).  Each employee can only be counted one time for purposes of calculating the employee retention credit.

Casualty Loss Rules
The Act relaxes various statutory limitations to claiming a deduction for qualifying casualty losses in the Hurricanes Harvey, Irma, and Maria disaster areas.   The relief provisions under the Act include:
  • The requirement that a casualty loss exceeds 10% of Adjusted Gross Income (AGI) is removed.  However, the initial casualty deduction floor is increased from $100 to $500.
  • The requirement that a taxpayer must itemize deductions to claim a casualty loss is removed.  Instead, the casualty loss is added to the standard deduction for taxpayers not claiming itemized deductions.
  • Unlike the normal standard deduction, the additional deduction attributable to a casualty loss is allowed for Alternative Minimum Tax (AMT) purposes.
IRA and Retirement Plan Rules
The Act also provides favorable retirement plan withdrawal rules for "qualified hurricane distributions".  A qualified hurricane distribution is a distribution from an eligible retirement plan to an individual whose principal abode was in one of the hurricane disaster areas and who sustained an economic loss because of one of the hurricanes.   The eligible withdrawal period begins on August 23, September 4, and September 16 for Hurricanes Harvey, Irma, and Maria, respectively, and ends on December 31, 2019, for all disaster areas.

The provisions allow withdrawals of up to $100,000 to be eligible for favorable tax treatment including waiver of the 10% early withdrawal penalty, a 3-year withdrawal recontribution period, and a 3-year inclusion period for any amount required to be reported as income.

The Act also provides favorable rules for retirement plan loans including an increase of the maximum loan amount from $50,000 to $100,000, delay of certain repayment dates, and longer loan repayment terms.

Charitable Contributions
Cash contributions paid to a qualifying charitable organization between August 23 and December 31, 2017, for relief efforts in Hurricane Harvey, Irma, or Maria disaster areas are eligible for favorable tax treatment including temporary suspension of the AGI limitations for charitable contributions and the overall itemized deduction limitation for charitable contributions.
 
If you have any questions or require any additional information regarding this new tax bill or any other disaster relief provisions, please contact your Whitley Penn LLP tax advisor.

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