President Trump on December 20, 2019, signed into law H.R. 1865 (“The Further Consolidated Appropriations Act, 2020”), a government funding bill that includes significant tax provisions addressing the extension of over 30 expiring tax provisions, retirement plan provisions and disaster relief provisions. The new law includes some substantive changes to TCJA provisions. However, it does not address errors made in drafting the TCJA (i.e., TJCA technical corrections). Thus, for example, it does not correct errors made in drafting provisions relating to the depreciation of qualified improvement property, the effective date of net operating loss deduction changes, or the deduction of legal fees in connection with sexual misconduct.
The following list is a summary of the more significant retirement plan changes:
• The starting date for making required minimum distributions from an IRA is the year the owner turns age 72.
• The age 70½ limit for making IRA contributions no longer applies.
• Under prior law, funds contained in IRAs (and qualified plans) that a non-spouse inherited IRA could be withdrawn over the beneficiary’s life expectancy. Now, so-called “stretch” IRAs are eliminated by virtue of requiring non-spouse IRA beneficiaries (except for a minor child of the IRA owner, chronically ill individual, or anyone who is not more than 10 years younger than the IRA owner) to withdraw funds from inherited accounts within 10 years.
• Long-term part-time employees qualify to participate in a 401(k).
• 401(k) plans are permitted to adopt qualified birth or adoption distributions.
• A new tax credit is allowed for small employers using auto enrollment into their 401(k) plans.
• The legislation adds a new exemption from the 10 percent penalty of I.R.C. §72(t) for early withdrawals from a retirement account. Under the provision, a parent is allowed to withdraw up to $5,000 of funds penalty-free from a 401(k), IRA or other qualified retirement plan within a year of a child’s birth or the finalization of a child’s adoption. The provision is applicable for distributions made after 2019.
• Taxable non-tuition fellowships and stipends and nontaxable difficulty of care payments earned by home healthcare workers are treated as compensation for purposes of retirement plan contributions.
• Provisions that allow employers to encourage employees towards lifetime annuities.
• Plan administrative changes that provide additional flexibility for employees and reduce costs for employer sponsors.
The most significant tax provisions that had previously expired are now extended by the Act and listed below:
• Cancellation of qualified principal residence indebtedness exclusion from gross income has been extended through the end of 2020.
• Mortgage insurance premiums deduction has been extended through the end of 2020.
• Medical expense AGI limitation threshold reduced from 10% to 7.5% of AGI for all taxpayers for regular tax and for AMT purposes has been extended through the end of 2020.
• Tuition and fees deduction has been extended through the end of 2020.
• Indian employment credit is extended through the end of 2020.
• Race horse two years old or younger treated as 3-year property instead of 7-year property has been extended through the end of 2020.
• Empowerment zone tax incentives has been extended through the end of 2020. • Nonbusiness energy property credit has been extended through the end of 2020.
• Alternative motor vehicle credit for qualified fuel cell motor vehicles has been extended through the end of 2020.
• Alternative fuel vehicle refueling property credit has been extended through the end of 2020.
The new law also includes a number of miscellaneous provisions, including:
• The repeal of the excise taxes on high cost employer-sponsored health coverage (Cadillac plans) and medical devices that was first enacted under the Affordable Care Act (ACA).
• The repeal of the fee on health insurance providers that was first enacted under ACA.
• The application of the estate and trusts tax rate to unearned income of children (the kiddie tax) has been repealed and replaced with the use of the parents’ tax rate for tax years after 2019.
• The parking tax on certain employee fringe benefits has been repealed.