Authored by Paul Dillon, Christine Faris, Michelle Hobbs, Mike Schiavo and Michael Wronsky
Congress attached numerous tax provisions to a series of government funding bills (collectively, “the bill”), including repeal of three Affordable Care Act (ACA) taxes, a long list of so-called “tax extenders,” and various technical changes to the retirement plan rules. Both chambers have now passed the bill, which is expected to be signed into law by the end of this week.
The spending bill does not include other priorities that Democrats and Republicans were hoping to have in year-end legislation. Democrats had been pushing for tax extenders to be paired with the expansion of tax credits benefiting low- and middle-income families as well as renewable energy tax credits. Republicans had been pressing for technical corrections for drafting errors in the 2017 Tax Cuts and Jobs Act (TCJA). Most notably, the bill did not correct the qualified improvement property glitch; consequently, such property is still ineligible for bonus depreciation.
The bill repealed three taxes that were part of the ACA – the “Cadillac” tax, the health insurance industry fee and the medical device tax.
The Cadillac tax, a 40% levy on generous health insurance plans, was intended to help drive down healthcare spending by incentivizing employers to lower costs to avoid being subject to the tax. Due to strong opposition from a broad coalition in both parties, the Cadillac tax was repeatedly delayed and never went into effect.
Second, the health insurance industry fee, originally enacted as part of the ACA to help fund the marketplace exchanges, has been revoked. This fee was scheduled to be collected from insurance companies offering fully insured health plans beginning in 2018 and had been given a one-year moratorium by Congress.
Finally, the 2.3% tax on medical devices was canceled. This tax drew bipartisan opposition from lawmakers who warned it harmed innovation by hurting small medical device companies.
With the repeal of these three taxes, as well as the TCJA’s repeal of the individual mandate, many of the significant funding sources of the ACA have now been eliminated.
More than 30 tax extenders were included in the package -- most of which expired at the end of 2017, as well as some that were not set to expire until the end of 2019. The majority of these provisions were enacted through Dec. 31, 2020. With most 2018 tax returns already filed, it is unclear how the IRS will accommodate amended returns to take advantage of these newly reinstated tax benefits. In addition, many forms and instructions could need revisions to address this legislation.
Extenders that have been temporarily reinstated include:
Provisions for disaster tax relief were also included in the bill.
Congress also included the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 in the spending bill. The SECURE Act is the first major retirement legislation since the Pension Protection Act of 2006.
Some of the highlights include:
As part of a deal to extend certain tax credits, lawmakers and administration officials agreed to fix a provision in the TCJA that taxed qualified transportation fringe benefits provided by not-for-profits as unrelated business income, subject to the 21% unrelated business income tax (UBIT). This agreement, released Dec. 17, 2019, had bipartisan support and the support of not-for-profits across the country, including the National Council of Nonprofits.
Retroactively effective to Jan. 1, 2018, qualified transportation fringe benefits provided by not-for-profit organizations for their employees will no longer be taxed as unrelated business income subject to the 21% tax. Qualified transportation fringe benefits include:
We encourage you to meet with your Baker Tilly advisor to discuss how these provisions may impact your tax situation.