Year-End Law Makes Many Changes to the Tax Code

December 21, 2019 | Kristine A. Tidgren

The $1.4 trillion year-end spending package passed by Congress and signed into law on December 20, 2019, contains a number of provisions impacting taxpayers. The package, including the Consolidated Appropriations Act, 2020, H.R. 1158, and the Further Consolidated Appropriations Act, 2020, HR 1865, will keep the government running through September 2020. An estimated $426 billion (over 10 years) of the legislation is directed to tax provisions.

The final package reflects months of ongoing negotiations, with many long-discussed provisions finding their way into the law and others not making the cut. This post reviews these changes.

Repeal of ACA Taxes

Three taxes implemented by the Affordable Care Act have fueled years of debate and suspension provisions. The Act finally repeals these taxes completely.

  • Medical device excise tax (Section 501) (After December 31, 2019)
  • Annual fee on health insurance providers (Section 502) (After December 31, 2020)
  • Excise tax on high cost employer-sponsored health coverage (the Cadillac Tax) (Section 503) (After December 31, 2019)

SECURE Act

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) passed the House last May, but never made it to the floor of the Senate until it was included in the year-end spending bill. The SECURE Act makes significant changes to America’s retirement plan landscape. Provisions included in the SECURE Act are detailed in this post.  

Kiddie Tax Change Rollback

Also included in the SECURE Act was a rollback of the new kiddie tax provisions implemented by the Tax Cuts and Jobs Act. The TCJA modified the law to tax a child’s earned income under the rates for singles and to generally tax a child’s unearned income under rates applicable to trusts and estates. Prior to the TCJA, unearned income of children was generally taxed at the rate of their parents. The change made by the TCJA negatively impacted many children, including those with a parent killed while in active duty military service and those who received scholarships covering room and board. The SECURE Act repeals the kiddie tax changes made by the TCJA and reinstates the kiddie tax rules that existed prior to tax years beginning in 2018. Taxpayers can elect to apply the change to tax years beginning in 2018, 2019, or both.

Tax Extenders

Inserted into the spending bill were also a number of tax extenders, many for provisions which had already been expired for two years. This post details the many tax breaks retroactively revived by the spending bill.

UBTI – Qualified Transportation Fringe Benefits

The Tax Cuts and Jobs Act modified IRC §274(a)(4) to generally prevent an employer from deducting the expense of qualified transportation fringe (QTF) benefits provided to their employees. It correspondingly modified IRC § 512(a)(7) to require a tax-exempt organization’s unrelated business taxable income to be increased by the amount of the QTF expense that was no longer deductible under § 274. As a result of this change, many exempt organizations not before required to file a Form 990-T were required to pay tax on UBTI generated from offering parking or transit passes to their employees.

Section 301 of the Certainty and Disaster Tax Relief Act of 2019, included in the year-end spending legislation, retroactively repeals IRC § 512(a)(7). Although QTF benefit expenses remain non-deductible to employers, tax exempt organizations are no longer required to include these benefits in their UBTI and pay tax on their value.

Disaster Tax Provisions

The new law also included approximately $12.765 billion of disaster tax provisions, including the following:

  • Special disaster-related rules for withdrawals from retirement funds
  • Employee retention credit (40%) for employers affected by qualified disasters
  • Temporary increase in limitation on qualified contributions
  • Special rules for qualified disaster-related personal casualty losses
  • Special rule for determining earned income for earned income tax credit purposes
  • Automatic 60-day extension of filing deadlines in case of certain taxpayers affected by Federally declared disasters
  • Modification of the tax rate for the excise tax on investment income of private foundations
  • Additional low-income housing credit allocation for qualified 2017 and 2018 California disaster areas

No Technical Correction for Qualified Improvement Property

The year-end spending package did not include technical corrections to the TCJA. Negotiations to swap fixes to admitted TCJA errors for expansions to refundable tax credits broke down in the final days. As a result, no technical corrections were included, and, most notably, qualified improvement property remains 39-year property, not eligible for bonus depreciation.