On Friday, December 20, 2019, the President signed the Further Consolidated Appropriations Act, 2020 (the “Act”) which addresses several tax provisions such as retirement plan funding and distribution reform, items related to expiring or expired tax provisions (“tax extenders”), and disaster tax relief.
RETIREMENT PLAN FUNDING AND DISTRIBUTION REFORM
- The Act also includes the SECURE Act provisions, which makes major changes to 401(k) plans and IRAs. Most of these provisions take effect on January 1, 2020.
- The start date for required minimum distributions (“RMDs”) is now the year in which the owner turns 72 rather than 70 ½.
- The Act ends the 70 ½ age limit for contributions to IRAs.
- The distribution period for non-spouse inherited IRAs is now shortened to a 10-year maximum. The old rule allowed permitted beneficiaries to stretch the distribution period over their life expectancy.
- Now there is a requirement for 401(k) plans to offer participation to part-time employees who meet certain criteria.
- A new tax credit is allowed for small employers using auto-enrollment plans.
Tax extenders are tax provisions that have already expired or were set to expire by year end. The Act revives tax provisions retroactively effective for 2018 and extends them through the end of 2020.
- The Act allows for the reduction of the adjusted gross income (“AGI”) floor for medical and dental expense deduction from 10% to 7.5%.
- There is now a deduction for tuition and fees paid by taxpayers whose income is below certain IRS limits.
- The treatment of mortgage insurance premiums is now deductible as qualified residence interest subject to income-level phaseouts.
- Qualified principal residence indebtedness can be excluded from gross income.
- The new markets tax credit, which encourages investment in an economically depressed area, was extended.
- The Act extends most energy credits, including the credits for nonbusiness energy property, qualified fuel cell vehicles, and energy-efficient commercial buildings.
- Eligible employers offering paid family and medical leave may receive a tax credit through 2020.
- The Work Opportunity Tax Credit (WOTC) was extended. This credit offers employers tax credits for hiring certain individuals from targeted demographic groups.
DISASTER TAX RELIEF
The Act provides tax relief to survivors of federally declared disasters occurring from January 1, 2018, through 30 days after the Act’s enactment.
- With respect to uncompensated losses arising in a disaster area, the Act eliminates the requirement that the personal casualty losses must exceed 10% of adjusted gross income to qualify for the deduction. Further, the Act eliminates the requirement that taxpayers must itemize deductions to access this tax relief.
- Forgiveness of the 10% early withdrawal penalties on qualified disaster retirement distributions is also an aspect of the Act.
- The Act also provides flexibility for loans from retirement plans for qualified hurricane relief.
- Further, a qualified disaster distribution can be considered ratable and included in income or re-contributed back into an eligible retirement plan within a period over three years from the distribution.
- Finally, the disaster tax relief portion of the Act also enacts an employee retention credit for eligible employers equal to 40% of qualified wages, which are wages paid to an employee during the time the employer’s business is not operating due to a natural disaster (up to 150 days after the disaster).
If you have any questions regarding the passing of this new act and how it may affect you, be sure to contact your CRI tax advisor for help!