By: Eric R. Elmore
Amidst all the talk about impeachment and the hard-line partisan politics in Washington was a pearl of good news for the American taxpayer. Over the weekend, congressional leaders and the White House agreed to extend, through 2020, the group of tax provisions commonly known as "tax extenders." What does this mean for you? Let’s take a look…
The agreement is a year-end tax package that renews expired incentives for businesses and individuals as part of legislation to avert a federal government shutdown.
The tax extender legislation would be an amendment to the government funding bill, which will be up for a Congressional vote this Friday. The vote must occur on Friday to avoid the possibility of a government shutdown. If passed, the package would provide tax incentives for:
- Railroad track maintenance
- Biodiesel and renewable fuels
- College students
- Racehorse owners
- Businesses on Native-American reservations
Other tax breaks in the extension are the New Markets Tax Credit, Work Opportunity Tax Credit, Empowerment Zone tax incentives, a credit for health insurance costs of eligible individuals and a credit for economic development in American Samoa.
The legislation would also provide credits for qualified fuel cell motor vehicles, two-wheeled plug-in electric vehicles, energy-efficient homes and non-energy business properties. It would allow credits for Native-American coal facilities, second-generation biofuel plants and producers of craft beer, wine and alcohol.
With this bill, the tax rate would go down to 1.39% from 2% on investment income of private foundations and low-income housing tax credits available in California would be increased. The bill would provide special rules for using retirement funds, credits for retaining employees and an automatic extension of tax return filing requirements in the wake of federally declared disasters.
The larger spending bill, unveiled Monday, also includes a host of tax provisions, including a repeal of several health care-related taxes first passed as part of the Affordable Care Act, including the 2.3% medical device excise tax, the annual fee on insurers known as the health insurance tax and the 40% excise tax on high-cost health insurance plans known as the Cadillac tax.
The bill also includes the contents of the Setting Every Community Up for Retirement Enhancement Act, which passed earlier this year. The bill would change rules for retirement plans to make contributions easier and create a new tax credit for small employers that offer an auto-enrollment option, among other changes to retirement accounts. The bill also allows 529 plans to be used for apprenticeship expenses, tuition, books and more.
The spending bill also includes a fix to correct an anti-abuse tax imposed by the Tax Cuts and Jobs Act ("TCJA") aimed at preventing the shifting of parents' income to their children at lower rates. The fix would eliminate changes to the “kiddie tax” made under the TCJA, which imposed the higher tax rates for trusts and estates on children's unearned income, rather than the highest marginal tax rates of the children's parents.
Now, this is Washington, D.C., and House Democrats and Republicans are actively seeking other side deals to promote their agendas as we move into the presidential election year. No matter how the bill may change before it gets the floor vote in the House this Friday, the Senate remains a wildcard, especially in the wake of a possible impeachment trial.
The Tax Warriors® at Drucker & Scaccetti will keep a watchful eye on the tax implications of this bill as it moves through both Houses and makes it way to President Trump’s desk. Look for updates and breaking news from us as it becomes available.