Tax Bills Pending in Congress

 

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Several tax bills pending in Congress have received widespread bipartisan support and may become law in the next weeks or months. But whether passage will actually occur is uncertain, and provisions may be modified. The discussion here is to offer a sense of the current mood of Congress.

 

SECURE Bill

The Setting Every Community Up for Retirement Enhancement (SECURE) Bill of 2019 cleared the House on May 23 by an overwhelming bipartisan majority of 417 to 3. In addition to addressing retirement, the bill repeals a controversial portion of the Tax Cuts and Jobs Act's (TCJA) hike on interest, dividends, and other unearned income of dependent children (the so-called "kiddie tax"). Although expected to move quickly through the Senate as well, the measure was at least temporarily blocked there by Senator Ted Cruz (R-TX).

 

The sweeping retirement savings proposals include a repeal of the maximum age for traditional IRA contributions (currently age 70½) and an increase to the age at which required distributions must begin (from 70½ to 72). The bill will also allow some part-time employees to contribute to 401(k) plans, permit a $5,000 penalty-free retirement withdrawal for birth or adoption expenses, and allow $10,000 of 529 plan funds to be used to repay student loans.

 

Under TCJA, in order to simplify calculations, children's unearned income above $2,100 became taxed at trust income rates rather than at the top rates of their parents. However, this had the unintended effect of raising taxes by as much as five times on certain children of deceased U.S. military members, so-called "Gold Star" families. The proposed legislation would correct the inequity.

 

Tax Extenders

At least 42 temporary tax breaks expired after 2017 or 2018, and Congress has been discussing renewing these so-called "tax extenders." Many are tax credits (such as energy provisions) that subsidize certain economic activities. Another expired provision is the taxpayer-friendly decrease of the threshold for medical deductions to 7½% of adjusted gross income, which has now returned to 10% for 2019.

 

In addition to considering the merits of individual expired benefits, Congress has been discussing the general policy behind temporary tax provisions. Many members feel that benefits with uncertain expirations and retroactive renewals do not provide the intended incentives for economic growth.

 

Technical changes to TCJA

Congress has not yet addressed technical corrections to TCJA. For example, lawmakers intended that leasehold improvements and other Qualified Improvement Property be eligible for a 15-year depreciable life and immediate write-off under 100% bonus depreciation. But due to an error in the drafting of the law, such property must be depreciated over 39 years with no bonus depreciation.

 

At a legal conference Thursday, the tax counsel of the House Ways and Means Committee said tax writers will not address TCJA technical corrections until Congress agrees to a tax extender package.

 

LM Cohen will keep you informed on the fate of these tax bills and other breaking tax legislation. All our prior Alerts are available on the Updates page of our website.

 

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