On December 20, President Trump signed into law the annual government spending package, which includes amendments to the tax law, the repeal of certain Affordable Care Act (ACA) taxes and various retirement measures. Here’s an overview of key changes that will affect businesses and individual taxpayers.
The Further Consolidated Appropriations Act is an omnibus spending package that includes the Taxpayer Certainty and Disaster Tax Relief Act of 2019. It provides extensions, through 2020, for certain provisions that expired at the end of 2017 and 2018 or are set to expire at the end of 2019, such as:
- The exclusion from gross income of discharge of qualified principal residence indebtedness,
- The treatment of mortgage insurance premiums as qualified residence interest,
- A reduction in the medical expense deduction floor to 7.5% of adjusted gross income (AGI),
- The deduction for qualified tuition and related expenses,
- Empowerment zone tax incentives,
- The New Markets Tax Credit,
- The Employer tax credit for paid family and medical leave,
- The Work Opportunity Tax Credit,
- Certain provisions related to beer, wine and distilled spirits,
- The look-through rule for related controlled foreign corporations, and
- The credit for health insurance costs of eligible individuals (commonly referred to as the health coverage tax credit or “HCTC”).
In addition, the biodiesel credit has been extended for two years through 2021. The expired railroad maintenance tax credit was extended through 2022. None of the so-called “extenders” were made permanent.
The legislation also provides tax relief for individuals and businesses in presidentially declared disaster areas occurring between January 1, 2018, and the end of the period following the date of enactment of the legislation.
Certain corrections and clarifications did not make it into the final bill, however. Measures to approve accountability and transparency in Qualified Opportunity Zones failed to make the final cut, as did increases in the EITC child tax credit, expansion of credits for electric vehicles and a technical correction to the Tax Cuts and Jobs Act (TCJA) provision for qualified improvement property.
The spending package also includes another law, the Setting Every Community Up for Retirement Enhancement (SECURE) Act. It includes provisions to help small employers band together in multiple employer plans (MEPs) with lower management expenses.
The SECURE Act also repeals the prohibition on contributions to a traditional IRA by an individual who has reached 70½. And it increases the required minimum distribution (RMD) age from 70½ to 72 for RMDs.
The spending package permanently repeals three ACA taxes:
- The 40% “Cadillac tax” on employer-sponsored health plans,
- The 2.3% tax on medical devices, and
- The health insurer fee.
The law also increases the minimum age to purchase tobacco products to 21 in an effort to curb vaping among teenagers.
For More Information
The spending package contains many unexpected surprises. We will continue to cover them in the coming weeks. Contact your tax advisor if you want more detailed information on how the provisions will affect you or your business.