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Highlights of the Spending Package’s Tax Law Changes

As part of a year-end budget bill, Congress recently passed a package of tax provisions that will provide savings for some taxpayers, which the President has signed. The federal government spending package titled the Further Consolidated Appropriations Act, 2020 does more than just fund the government. It extends certain income tax provisions that had already expired or that were due to expire at the end of 2019. It also includes a retirement-related law titled the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

Here’s a rundown of some provisions in the two laws.

Extenders

Here are some of the most widely relevant breaks that have been extended through 2020:

  • The exclusion from gross income of discharge of qualified principal residence indebtedness,
  • The treatment of mortgage insurance premiums as qualified residence interest for itemized deduction purposes,
  • The reduction in the medical expense itemized deduction floor to 7.5% of adjusted gross income returns,
  • The above-the-line deduction for qualified tuition and related expenses,
  • Empowerment zone tax incentives,
  • The New Markets credit,
  • The employer tax credit for paid family and medical leave, and
  • The Work Opportunity credit.

Some of these extensions might open up year-end tax planning opportunities. And the extension of some breaks that had expired at the end of 2017 but that now have been retroactively revived means that some taxpayers should consider filing amended returns for 2018.

Retirement Plans

The SECURE Act is primarily intended to encourage saving for retirement, though it’s not entirely favorable to taxpayers. Most provisions take effect January 1, 2020. Here are some of the most significant provisions:

  • Elimination of the age 70½ limit for making traditional IRA contributions, so that anyone can contribute as long as they’re working, matching the existing rules for 401(k) plans and Roth IRAs,
  • Raise the age at which taxpayers must begin to take required minimum distributions (RMDs) from 70½ to 72,
  • An exemption from the 10% tax penalty on early retirement account withdrawals of up to $5,000 within one year of the birth of a child or an adoption becoming final,
  • Elimination of the “stretch” RMD provisions that have permitted beneficiaries of inherited retirement accounts to spread the distributions over their life expectancies,
  • Expansion of access to open multiple employer plans (MEPs), which give smaller, unrelated businesses the opportunity to team up to provide defined contribution plans at a lower cost, due to economies of scale, with looser fiduciary duties.
  • Elimination of employers’ potential liability when it comes to selecting appropriate annuity plans,
  • Expansion of the automatic contribution to savings plans to 15% of employee pay,
  • A new requirement that employers allow participation in their retirement plans by part-time employees who’ve worked at least 1,000 hours in one year (about 20 hours per week) or three consecutive years of at least 500 hours,
  • Provisions aimed at Gold Star families eliminating an unintended tax on children and spouses of deceased military family members.

Stay Tuned

This is just a brief overview of some of the most relevant provisions. We’ll be writing more about them in the near future.  In the meantime, please contact us with any questions.

 

 

Santora CPA Group
Call us 302-737-6200