The New Spending Law in a Nutshell

On December 20, The Consolidated Appropriations Act of 2020 was signed into law by President Trump, avoiding a government shutdown that would have taken place on December 21, 2019. The appropriations act will fund the federal government until September 30, 2020.

This appropriations bill includes many tax law changes, extenders, retirement plan funding and distribution reform, and disaster relief. Here is an overview of key changes in the bill.

Extension of Expiring Provisions

This bill includes many extensions, which will extend certain provisions that have expired recently or will expire at the end of the year. Here are some key extensions:

Extended through the end of 2020

Individual

  • Cancellation of qualified principal residence indebtness exclusion from gross income,
  • The qualification of mortgage insurance premiums as residence interest,
  • A reduction in the Medical expense deduction floor from 10% to 7.5% of all adjusted gross income,
  • The deduction for tuition and fees,
  • Nonbusiness energy property credit,
  • Alternative motor vehicle credit for eligible fuel cell vehicles,
  • Electric vehicle credit for 2-wheeled highway-capable vehicles,

Businesses

  • Alternative fuel vehicle refueling property credit.
  • Energy efficient home credit,
  • Energy efficient commercial building property deduction,
  • Employer credit for paid family and medical leave,
  • Work opportunity credit,
  • Health coverage tax credit

The legislation also provides tax relief for individuals and businesses in disaster areas from January 1, 2018 until 30 days decided following the enactment of the law. In Michigan there is only one incidence of this: A Major Disaster Declared by president Trump on August 2, 2018 for Storms, flooding, and landslides in the counties of Gogebic, Houghton, and Menominee that occurred on June 16 – 18, 2018.

New provisions

Retirement Provisions

The new spending package includes new provisions under the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

This act introduces new provisions such as:

  • Increasing the age for required minimum distribution (RMD) from 70 ½ to 72,
  • Repeal of the 70 ½ age limit for contributions to a traditional IRA
  • Non-spouse inherited IRAs now have a 10-year maximum distribution period,
  • Long-term part-time employees now qualify to participate in a 401(k),
  • 401(k) plans are allowed to adopt qualified birth or adoption distributions,
  • Introduction of tax credit for small employers using auto enrollment into their 401(k) plans,
  • Qualified birth or adoption distributions up to $5,000 are exempt to the early-withdrawal penalty.

The SECURE act will also make it easier for small business owners to set up “safe harbor” retirement plans that are less expensive and easier to administer.

Other Provisions

The new spending package permanently repeals three ACA taxes:

  • The 40% “Cadillac tax” on employer-sponsored health plans
  • The 2.3% tax on medical devices,
  •  The health insurer fee.

The bill also repeals the application of the estate and trust tax rate to the unearned income of children “Kiddie tax” and will start using the parent’s tax rate after 2019.

The law also increases the minimum age to purchase tobacco products to 21 to discourage vaping among teenagers.

For more information

The new spending package has many new provisions and repeals. Contact your tax advisor for more details or to determine how these new provisions affect you or your business.

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