Significant Tax Provisions Signed Into Law

Just as the year is about to end, House Resolution (H.R.) 1865 was passed by Congress and signed into law by President Donald J. Trump on December 20.
This bill, known as "The Further Consolidated Appropriations Act, 2020," includes various provisions we know are important to our clients, so we wanted to share the highlights with you. The following is a broad overview of these changes. For more detailed information, please contact us directly .

Retirement savings and pensions provisions

The SECURE (Setting Every Community Up for Retirement Enhancement) Act expands the opportunities for individuals to increase their savings and make administrative simplifications to their retirement systems. Among the changes, the Act:
  • Modifies the requirements for multiple employer plans to make it easier for small businesses to offer plans to employees, allowing unrelated employers to join in the same plan.
  • Repeals the maximum age for allowing contributions to a traditional IRA, allowing individuals to contribute past the age of 70 1/2. This is effective for contributions made for tax years beginning after Dec. 31, 2019. Also, this does not change the rules for Roth IRAs and 401(k) contributions in the event that the employee is still working.
  • Increases the age after which required minimum distributions (RMD) from certain retirement accounts must begin, from 70 1/2 to 72, allowing participants to defer distributions and grow their savings. This only applies to individuals who have not attained age 70 1/2 by the end of 2019.
  • Allows for penalty-free distributions of up to $5,000 from an IRA (or defined contribution plan) to use for costs related to the birth or adoption of a child.
  • Long-term part-time employees (working more than 500 but less than 1,000 hours per year for three consecutive years) may participate in qualified cash or deferred arrangements. Employers are not required to make matching or non-elective contributions.
  • To help pay for these savings opportunities, non-spouse beneficiaries will no longer be able to "stretch" distributions over their lifetimes. Instead, 10 years will be the maximum distribution period.

Extender legislation

This portion of the bill, referred to as the "Taxpayer Certainty and Disaster Tax Relief Act of 2019," includes extensions of 34 tax provisions that were scheduled to expire or had already expired. Among the provisions extended:
  • The Work Opportunity Tax Credit (WOTC) which provides a tax credit to companies which hire from target groups with significant employment barriers (ex: veterans, ex-felons, vocational rehabilitation referrals)
  • Biodiesel and renewable diesel credit
  • Alternative fuel and alternative fuel mixture credit (also provides clarification of the types of fuel qualifying for the alternative fuel credit)
  • Empowerment Zone tax incentives
  • An above-the-line deduction for qualified tuition and related expenses for higher education
  • Treatment of mortgage insurance premiums as qualified residence interest
  • Credit for purchases of non-business energy property, allowing a credit of 10% of the amounts paid or incurred by the taxpayer for qualified energy improvements to the building "envelope" of principal residences (lifetime cap of $500)
  • Credit for manufacturers of energy-efficient residential homes
  • Deduction for energy efficiency improvements in lighting, heating, cooling, ventilation and hot water systems of commercial buildings (for property placed into service before Jan. 1, 2021)
  • Employer tax credit for paid family and medical leave (through 2020)

Healthcare-related tax issues

This part of the bill repeals three taxes that were enacted as part of the Patient Protection and Affordable Care Act:
  • The medical device excise tax (MDET) is repealed for sales after Dec. 31, 2019
  • The 40% excise tax on high-cost employee-sponsored health plans, often known as the "Cadillac" tax, is repealed for tax years beginning after Dec. 31, 2019
  • The annual fee on health insurance providers is repealed beginning after Dec. 21, 2020

The extender division of the law also reinstates the threshold to deduct medical expenses to 7.5% rather than 10% of adjusted gross income (AGI) for tax years 2019 and 2020.
Ready to be of service

As always, we are ready to be of service to you to answer your questions about these changes and to provide more detailed information. Please call 630-653-1616 or e-mail us to connect.
Ron Austin, CPA
Brian Eisenmenger, CPA
Brian Hagene, CPA
Brett Mathieson, CPA
Mike Moyski, CPA
John Straus, CPA
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