Congress was as busy as Santa’s elves before they left for their holiday recess. The spending bill they passed includes the repeal of three health care taxes that were part of 2010 Affordable Care Act (“Obamacare”), many changes to retirement plan rules, and it also extends several expired tax provisions as well as disaster relief for victims for disasters occurring in 2018 and 2019. Here are some of the highlights.
Retirement plan changes–The Secure Act of 2019 was passed and provides for:
- A change to the starting date for individuals who turn 70 ½ in 2020 or later to delay their mandatory Required Minimum Distributions (RMD) until they turn 72 years old. This is the age when you are required to start taking money out of retirement accounts unless you want to be penalized for not doing so.
- Requires non-spousal beneficiaries of IRAs and qualified plans to withdraw all money from inherited accounts within 10 years.
- The age cap on contributions to IRAs for someone over 70 ½ has been removed (assuming they are still working).
- Allows penalty-free distributions from qualified retirement plans and IRAs for births and adoptions.
The new Kiddie Tax
The tax on unearned income known as the “Kiddie Tax” which was introduced by the law known as the Tax Cuts and Jobs Act (TCJA), was repealed.
The bill extends many expired tax provisions. Among those extended through 2020 are:
- Extends the ability to exclude the discharge of qualified principal residence indebtedness income from gross income.
- Allows the deduction of mortgage insurance premiums as qualified residence interest, which permits a taxpayer whose income is below certain thresholds to deduct the cost of premiums on mortgage insurance purchased in connection with acquisition indebtedness on the taxpayer’s principal residence.
- The 7.5% (instead of 10%) adjusted-gross-income floor for medical expense deductions.
- Reinstates the above-the-line deduction for qualified tuition and related expenses.
Also extended were various incentives for employment and economic growth and for energy production and efficiency, including credits for energy efficiency, renewable energy, and alternative fuels, like electric cars.
Health care taxes
The 40% excise tax on high-cost employer-sponsored health plans known as the “Cadillac Tax”, the medical device excise tax and the annual fee on health insurance providers previously postponed were all repealed.
Disaster tax relief
The bill also provides tax relief for victims of various disasters occurring in 2018, 2019, and up to 30 days after enactment of the bill. Eligible taxpayers can make tax-favored withdrawals from retirement plans. The bill 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).
Please call Steve Gallant or your LGA advisor if you have any questions on how these recently passed provisions affect you.
by Steven R. Gallant, CPA, Partner