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Appropriations Bill Includes Tax Extenders and Numerous Other Tax Provisions
(Parker Tax Publishing December 23, 2019)
On December 20, 2019, President Trump signed into law an appropriations bill that included several tax-related bills. One of those bills extends a number of expired and expiring tax provisions (generally through 2020) and another amends retirement-related provisions in the Code to provide, among other things, (1) an increase in the mandatory retirement plan distribution age to 72 years old; (2) an increase on the cap for automatic contributions to pension plans from 10 percent to 15 percent of employee compensation; (3) an increase in the tax credit for small employer pension plan startup costs; and (4) penalty-free withdrawals from retirement plans for expenses relating to the birth of a child or an adoption. See document: H.R. 1865.
As part of its spending package to keep the U.S. government running, Congress passed an appropriations package that contained two tax-related bills - The Tax Extender and Disaster Relief Act of 2019 (TEDRA) and The Setting Every Community Up for Retirement Enhancement Act of 2019. Combined, these tax bills make substantial changes to the Code that will affect many 2019 tax returns. Because TEDRA retroactively extends numerous tax breaks that had expired in 2017, it may necessitate the filing of amended returns for 2018 in some cases.
TEDRA extends the following tax provisions:
(1) Nonbusiness energy property
(2) Qualified fuel cell motor vehicles
(3) Alternative fuel refueling property credit
(4) Two-wheeled plug-in electric vehicle credit
(5) Second generation biofuel producer credit
(6) Biodiesel and renewable diesel incentives
(7) Credit for electricity produced from certain renewable resources
(8) Production credit for Indian coal facilities
(9) Railroad track maintenance credit
(10) Energy efficient homes credit
(11) Classification of certain race horses as 3-year property
(12) Special allowance for second generation biofuel plant property
(13) Energy efficient commercial buildings deduction
(14) Election to expense advanced mine safety equipment
(15) Extension of special rule for sales or dispositions to implement FERC or state electric restructuring policy for qualified electric utilities
(16) Extension and clarification of excise tax credits relating to alternative fuels
(17) 7-year recovery period for motorsports entertainment complexes
(18) Accelerated depreciation for business property on Indian reservations
(19) Extension of certain expensing rules for certain film, television, and live theatrical productions
(20) Indian employment credit
(21) Mine rescue team training credit
(22) Exclusion from gross income of discharge of qualified principal residence indebtedness
(23) Treatment of mortgage insurance premiums as qualified residence interest
(24) Deduction of qualified tuition and related expenses
(25) Extension of empowerment zone tax incentives
(26) American Samoa economic development credit
(27) Temporary reduction in medical expense deduction floor
(28) Extension of oil spill liability trust fund rate
(29) Extension of the Black Lung Disability Trust Fund
With respect to disaster relief that is part of TEDRA, the bill provides for:
(1) Special disaster-related rules for use of retirement funds
(2) Employee retention credit for employers affected by qualified disasters
(3) Other disaster-related tax relief provisions such as special rules for qualified disaster-related personal casualty losses and a special rule for determining earned income
(4) Automatic extension of filing deadlines in cases of certain taxpayers affected by Federally declared disasters
The other tax-related bill, Setting Every Community Up for Retirement Enhancement Act of 2019:
(1) Increases the cap for automatic contributions to pension plans from 10% to 15% of employee compensation, beginning after 2019
(2) Limits the annual safe harbor notice to matching contribution plans and permits amendments to nonelective status at any time before the 30th day before the close of the plan year. Amendments may be made after that date if the amendment provides for a nonelective contribution of at least 4% of compensation for all eligible employees and the plan is amended no later than the last day for distributing excess contributions for the plan year
(3) Increases the tax credit for small employer pension plan startup costs
(4) Creates a new three-year tax credit for small employers for startup costs for new pension plans that include automatic enrollment
(5) Treats stipends and non-tuition fellowships as compensation for purposes of the retirement savings tax deduction
(6) Repeals the prohibition on contributions to a traditional Individual Retirement Account (IRA) by an individual who has reached age 70-1/2
(7) Prohibits the distribution of plan loans through credit cards or similar arrangements
(8) Permits certain tax-preferred pension plans to make a direct trustee-to-trustee transfer to another employer plan or IRA of lifetime income investments in the form of a qualified plan distribution annuity, if a lifetime income investment is no longer allows as an investment option in a plan
(9) Provides that the Treasury Department must issue guidance on the treatment of custodial accounts on the termination of Section 403(b) Plans
(10) Specifies those individuals who may be covered by pension plans maintained by church-controlled organizations
(11) Allows certain long-term employees who work at least 500 hours in 3 consecutive 12-month periods and have reached age 21 to participate in elective deferrals
(12) Permits penalty-free withdrawals from retirement plans for expenses related to the birth of a child or adoption
(13) Increases from 70-1/2 to 72 the age for mandatory distributions from retirement plans.
(14) Sets forth rules for reducing the annual contributions of community newspapers to their employee pension plans
(15) Treats difficulty of care payments to healthcare workers as earned income for retirement plan purposes
(16) Allows employers to treat retirement plans adopted before the due date of the tax return as adopted as of the last day of the tax year
(17) Requires the filing of a consolidated Form 5500 for similar retirement plans
(18) Requires benefit statements provided to defined contribution plan participants to include a lifetime income disclosure at least once during any 12-month period
(19) Provides a safe harbor for fiduciaries in the selection of an insurer for a guaranteed retirement income contract
(20) Modifies pension plan nondiscrimination rules with respect to closed plans to permit existing participants to continue to accrue benefits
(21) Reduces Pension Benefit Guaranty Corporation (PBGC) premium rates for Cooperative and Small Employer Charity (CSEC) plans for plan years beginning after 2018
(22) Reinstates for one year and increases the exclusion from gross income for benefits paid to volunteer firefighters and emergency medical responders
(23) Expands 529 education savings accounts to cover costs associated with registered apprenticeships, student loan repayments, and certain costs associated with elementary and secondary education
(24) Modifies required minimum distribution rules with respect to defined contribution plans and IRA balances upon the death of the account holder. All distributions must be made by the end of the 10th year after death, except for distributions made to certain eligible designated beneficiaries
(25) Increases the penalty for failure to file to the lesser of $400 or 100% of the amount of the tax due
(26) Increases the penalties for failure to file retirement plan returns
(27) Allows the IRS to share returns and return information with U.S. Customs and Border Protection to administer and collect the heavy vehicle use tax
(28) Eliminates the taxation of the unearned income of children at rates applicable to trusts and estates and instead taxes such income at the parents' marginal tax rates.
Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.
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