The Disaster Act and ACA Excise Tax Relief
Dear Clients and Friends:
On December 20, 2019, the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the Disaster Act) as part of an omnibus spending package, the Further Consolidated Appropriations Act, 2020 was signed into law. The Disaster Act provides relief for taxpayers affected by disasters in 2018 through January 19, 2020. The Further Consolidated Appropriates Act, 2020 (the Act) also repeals several Affordable Care Act (ACA) excise taxes. On December 20, 2019, the Financial Services and General Government Appropriations Act, 2020 as part of the Consolidated Appropriations Act, 2020 was signed into law. The Act contains IRS taxpayer service provisions.
Special disaster-related rules for use of retirement funds
The Disaster Act provides an exception to the 10% early retirement plan withdrawal penalty for qualified disaster relief distributions (not to exceed $100,000 in qualified hurricane distributions cumulatively). It allows for the re-contribution of retirement plan withdrawals for home purchases canceled due to eligible disasters and provides flexibility for loans from retirement plans for qualified hurricane relief.
Employee retention credit for employers affected by qualified disasters
The Disaster Act creates a 2018 through 2019 qualified disaster employee retention credit. The tax credit is for 40% percent of wages (up to $6,000 per employee) paid by a disaster-affected employer to an employee from a core disaster area. The credit applies to wages paid without regard to whether services associated with those wages were performed.
Temporary suspension of limitations on charitable contributions
The Disaster Act temporarily suspends limitations on the deduction for charitable contributions associated with qualified disaster relief.
Special rules for qualified disaster-related personal casualty losses
With respect to uncompensated losses arising in a disaster area, the Disaster Act eliminates the current law requirements that personal casualty losses must exceed 10% of adjusted gross income to qualify for deduction. The Disaster Act also eliminates the current law requirement that taxpayers must itemize deductions to access this tax relief.
Special Rule for Determining Earned Income
The Disaster Act allows taxpayers in designated disaster areas to refer to earned income from the immediately preceding year for purposes of determining the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) in tax year 2018.
Automatic extension of filing deadline
The Disaster Act provides any individual with a principal place of abode or any taxpayer with a principal place of business in a disaster area an automatic 60-day extension with regard to any tax filing. This applies to federally declared disasters declared after December 20, 2019.
Modification of excise tax on private foundations
The Disaster Act modifies the private foundation excise tax rules. This modification is intended to encourage private foundations to make larger one-time donations, such as is needed the case of disaster relief. This applies to tax years beginning after December 20, 2019.
Additional low-income housing tax credit allocations
The Disaster Act provides additional low-income housing credit allocations relating to qualified 2017 and 2018 California disasters.
Treatment of Certain Possessions
The Disaster Act provides the Secretary of the Treasury the authority to make payments to Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa equal to the losses the territories would incur by reason of the application of the disaster relief Codes.
ACA repeal provisions:
Repeal of medical device excise tax
Code Sec. 4191(a), which was added by the ACA, provides that the sale of a taxable medical device by the manufacturer, producer, or importer is subject to a tax equal to 2.3% of the price for which it is sold (medical device excise tax). The medical device excise tax originally applied to sales of taxable medical devices after December 31, 2012. The Act repeals the medical device excise tax for sales occurring after December 31, 2019.
Repeal of health insurance provider's fee
Beginning January 1, 2014, Sec. 9010 of the ACA imposes an annual flat fee on covered entities engaged in the business of providing health insurance with respect to U.S. health risks. The Act repeals Sec. 9010 of the ACA for years beginning after December 31, 2020.
Repeal of high-cost employer-sponsored health coverage tax
Code Sec. 4980I, which was added by the ACA, imposed a nondeductible excise tax on insurers when the aggregate value of employer-sponsored health insurance coverage for an employee, former employee, surviving spouse or other primary insured individual exceeds a threshold amount. This tax is commonly referred to as the tax on "Cadillac" plans. The Act repeals Code Sec. 4980I including the tax on “Cadillac” plans for tax years beginning after December 31, 2019.
IRS taxpayer service provisions:
Training of IRS employees
The Act requires the IRS to maintain an employee training program that includes training on taxpayers' rights, dealing courteously with taxpayers, cross-cultural relations, ethics, and the impartial application of tax law.
Confidentiality of taxpayer information
The Act requires the IRS to institute and enforce policies and procedures that will safeguard the confidentiality of taxpayer information and protect taxpayers against identity theft.
Improved customer service
The Act requires the IRS to continue to make improvements to its 1-800 taxpayer help line a priority and to allocate resources necessary to decrease the time the IRS takes to respond to taxpayer communications and particularly to victims of tax-related crimes.
Targeted audits and regulations
The Act prohibits the IRS from targeting any U.S. citizen for exercising any First Amendment right. The Act also prohibits the IRS from targeting groups for regulatory scrutiny based on their ideological beliefs.
Please contact our office with questions.
YOUNG & ASSOCIATES, LLC