Bye, bye, bye: Appropriations law repeals several taxes, including parking tax for nonprofits
Andrew Seifert, JD, tax consultant, Wipfli LLP | February/March 2020 Footnote
Editor's note: Updated January 31, 2020
Another year, another set of 11th-hour changes. In late December, Congress passed the Further Consolidated Appropriations Act, 2020, H.R. 1865 (the Act), later signed into law by President Donald Trump. And, boy, were there some doozies in it.
The new law includes extensions for several expiring or expired tax provisions, repeals three major taxes imposed under the Patient Protection and Affordable Care Act, repeals the provision that imposed a tax on exempt organizations for providing parking to employees, provides relief to disaster victims and modifies many retirement plan rules.
Let’s take a closer look at some of these changes.
Tax relief and support for families and individuals
Section 101 of the Act extends the exclusion from gross income of discharge of qualified principal residence indebtedness. Generally, discharge of indebtedness income must be included in income; however, under IRC Section 108(a)(1)(E), the discharge of indebtedness related to a qualified principal residence can be excluded from income. This provision has been extended to Jan. 1, 2021.
Section 102 of the Act extends the treatment of mortgage insurance premiums as qualified residence interest under IRC Section 163(h)(3)(E). This section allows premiums paid or accrued for qualified mortgage insurance by a taxpayer in connection with acquisition indebtedness, with respect to a qualified residence of the taxpayer, to be treated as qualified residence interest. This provision has been extended through Dec. 31, 2020.
Section 103 of the Act extends the reduction of adjusted-gross-income floor for the medical expense deduction under IRC Section 213(f). This deduction is used for taxpayers with out-of-pocket medical expenses that exceed the threshold floor amount within the given tax year. This extension keeps the reduced floor of 7.5% of adjusted gross income, in lieu of the 10%, for amounts incurred before Jan. 1, 2021.
Section 104 of the Act extends the above-the-line deduction for qualified tuition and related expenses under IRC Section 222. Qualified expenses are amounts paid for tuition or fees for an eligible student that are required for attendance at an eligible educational institution. This provision has been extended through Dec. 31, 2020.
With the significantly higher standard deduction amounts passed in the Tax Cuts and Jobs Act of 2017 (TCJA), the extension of itemized deduction provisions may be of limited tax benefit for most taxpayers.
Tax provisions to spur the economy
The 2019 Act has a subtitle section dedicated to incentives for employment, economic growth and community development. This subtitle extends several provisions, including:
- The Indian Employment Credit.
- Classification of Certain Racehorses as 3-Year Property.
- The Railroad Maintenance Credit.
In addition, the Act has a dedicated subtitle section for purposes of incentives for energy production, efficiency and green economy jobs.
Other extenders continued into 2020
Section 141 of the Act extends the new markets tax credit. The new markets tax credit, under IRC Section 45D, and permits individual and corporate taxpayers to receive a credit for investing in qualified community development entities. The goal of the new markets tax credit is the creation of jobs and material improvement for low-income communities. This provision has been extended for 2020.
Section 142 of the Act extends the employer credit for paid family medical leave, under IRC Section 45S. This provision provides a tax credit for employers who provide paid family and medical leave to their employees. The credit that eligible employers can claim is equal to a percentage of wages they pay to qualifying employees while they are on family and medical leave. The credit has been extended through Dec. 31, 2020.
Section 143 of the Act extends the Work Opportunity Tax Credit, which is available to employers who hire individuals from qualified targeted groups who consistently face significant barriers to employment. The credit has been extended through Dec. 31, 2020.
Section 146 of the Act extends the credit for health insurance costs of eligible individuals under IRC Section 35. This section allows a limited class of taxpayers to obtain credits for health insurance costs. The credit has been extended for costs incurred before Jan. 1, 2021.
Affordable Care Act taxes repealed
Section 501 of the Act repeals the 2.3% Medical Device Excise Tax. Section 502 of the Act repeals the annual fee on health insurance providers.
Section 503 of the Act repeals the excise tax on high-cost employer-sponsored health coverage, commonly known as the Cadillac tax. These three taxes originally were enacted to fund the Affordable Care Acts’ coverage expansion.
Section 302 of the Act retroactively repeals the so-called parking tax, which was enacted by the TCJA.
IRC Section 512(a)(7) required unrelated business taxable income to be increased by the amount of expenses paid or incurred by a tax-exempt organization for certain fringe benefits, for which a tax deduction was not allowed. These fringe benefits relate to transportation, parking or an on-premises athletic facility.
The parking tax provision was largely unfavored by tax-exempt organizations due to the potential tax liability and the increased administrative burdens required by the provision.
The Act provides disaster relief for those affected by natural disasters from Jan. 1, 2018, through 60 days after enactment of the Act. The provisions providing disaster relief within the Act include an employee retention credit, tax-favored withdrawals from retirement plans and rules related to personal casualty losses. In addition, there is a 60-day filing extension for taxpayers affected by federally declared disasters.
The SECURE Act
The Act also implements provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. Provisions impacted by this section of the Act include increasing the required minimum distribution age from 70 1/2 to 72, repealing the maximum age for IRA contributions, accelerating the taxation of inherited IRAs, expanding options for lifetime income strategies, simplifying multiple-employer plans and enabling select part-time workers eligibility to participate in 401(k) plans.
Broad impact for clients, businesses
The Further Consolidated Appropriations Act, 2020 has broad impact, touching on just about every individual taxpayer and business in some way. The Act extended crucial provisions, repealed several major taxes and brought about significant changes in retirement planning.
Congress may have been late to the game, but they made some in-game adjustments and swung for the fences when they arrived.
Andrew Seifert, JD, is a member of the national tax office of Wipfli LLP, where he assists clients with complex tax issues, transactional advising and overall business consulting. An MNCPA member, Andrew frequently presents on tax-related matters. You may reach him at email@example.com or 651-766-2856.