Article

Congress enacts tax and retirement changes

Dec. 20, 2019 · Authored by Christine Faris, Paul Dillon, Michelle Hobbs, Mike Schiavo

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.

ACA taxes

The bill repealed three taxes that were part of the ACA – the “Cadillac” tax, the health insurance industry fee and the medical device tax.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Second, the health insurance industry fee, originally enacted as part of the ACA to help fund the marketplace exchanges, has been revoked.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.

Tax extenders

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.