New Federal Government Spending Bill Includes Significant Tax Provisions

As part of an overall $1.4 trillion spending package (two separate bills) expected to make its way through the House and Senate and then onto President Trump’s desk for signature, Congress is set to repeal some unpopular tax provisions enacted as part of the Tax Cuts and Jobs Act (TCJA). The bills also extend some popular provisions that expired at the end of 2017 or 2018, repeal a medical device excise tax enacted during the Obama administration, and rescind the “Cadillac” tax on high-cost health plans. They also add provisions intended to improve retirement savings and allow for additional disaster relief.

The tax portions of the bills are valued at $428 billion and are supported by both Democrats and Republicans. The current bills include provisions from the Taxpayer Certainty and Disaster Tax Relief Act of 2019 and the Setting Every Community Up for Retirement Enhancement Act (the SECURE Act), two measures that were unable to garner sufficient support within Congress for separate passage earlier this year.

Unfortunately, the bill does not include a highly desired technical correction to the TCJA that would allow bonus depreciation on qualified improvement property.

The spending bill’s tax-related highlights include (but are not limited to) the following:

• Repeals an increase to tax-exempt organizations’ unrelated business income for transportation fringe benefits
• Reinstates the so-called “kiddie tax” and repeals the TCJA’s tax treatment on unearned income of children
• Reduces the net investment income tax for private foundations from 2% to 1.39%
• Reduces the medical deduction floor from 10% to 7.5% for individuals eligible to itemize through 2020
• Extends the gross income exclusion for discharge of qualified principal residence indebtedness
• Extends the following provisions:
  • Work Opportunity Credit
  • Section 179D deduction for energy-efficient commercial building property
  • Section 25C credit for energy-efficient home improvements
  • Section 45L credit for energy-efficient new homes
  • Alternative and biofuel tax credits
  • New markets tax credit
  • Employer credit for paid family and medical leave
  • Railroad tax maintenance and mine rescue team training credits
• Enacts changes to retirement plan plans that impact both employers and individuals
  • Simplify 401(k) safe harbor rules
  • Allows two or more unrelated employers to join a pooled employer plan (“open MEPs”)
  • Increases the credit limitation for small employer retirement plan startup costs up to $5,000
  • Repeals the 70½ age cap on making IRA contributions
  • Increases the age for required minimum distributions (RMDs) from 70½  to age 72
  • Requires inherited retirement accounts to be distributed within 10 years (i.e. eliminates the “stretch IRA”)
  • Allows employers to adopt a new plan up to the due date of the employer’s tax return

Many of the extenders and changes have been retroactively applied to 2018.  These benefits will need to be captured through the filing of amended returns or through other procedures provided by the IRS.

As of the date of this article, the bill was still not final law. For more information on how these provisions might affect you, please contact your Schneider Downs tax advisor.