In recent weeks, Congress has passed some key legislation that will affect taxes for 2016. Most of these provide opportunities that may benefit you. Here’s a summary from Brian K. Isom, CPA, Principal in our Burlington office.
Health Reimbursement Arrangements for “Small Employers”
Congress passed and President Obama signed into law the 21st Century Cures Act on December 13, 2016. Like a lot of bills, this one included a great many unrelated items. One of them covered health reimbursement arrangements (HRAs) for small employers, (defined as employers who don’t offer a group health care plan to any employees and who have having fewer than 50 full-time employees). The law permits employers to offer an HRA to reimburse employees for qualified medical expenses, including health insurance premiums. If the employer offers the HRA, the employees will not be eligible for subsidies for health insurance purchased through an exchange.
The new law, which takes effect with health care programs beginning in 2017, limits reimbursement provided under an HRA to $4,950 for an individual and $10,000 for the individual and covered family members. Only HRA funding from employer contributions will qualify, with no salary reduction contributions. The employee plans have to meet the requirements of the Affordable Care Act, also known as Obamacare. Employers offering these HRAs will also have notification and reporting requirements.
PATH Act makes Several Provisions Permanent
The Protecting Americans From Tax Hikes (PATH) Act of 2015 made a number of important tax provisions “permanent” (although that term is relative when you are talking about legislators and their ability to leave things alone). Here’s a summary of some of these key provisions:
- American Opportunity Credit – This very important provision gives you a tax credit for 100% of the first $2,000 and 25% of the second $2,000 of college expenses. The PATH Act makes this permanent. You can get a maximum annual credit of $2,500 per eligible student.
- The Research Credit has been made permanent. Simply stated, this credit permits businesses to reduce their taxes by as much as 20% of the amount spent on qualifying research and development expenses. Consult with your tax professional in calculating this credit.
- DeMinimis Safe Harbor – In 2015, the IRS simplified the paperwork and recordkeeping requirements for small businesses by raising the safe harbor threshold for deducting certain capital items from $500 to $2,500. This process, now made permanent, allows for the expensing of items. We originally covered this in the fourth quarter newsletter in December 2015.
- Donation directly to a charity from an IRA account was made permanent –The law requires individuals over age 70 ½ with Individual Retirement Accounts (IRAs) to make a Required Minimum Distribution (RMD) from their IRAs. The provision of the PATH Act makes permanent the ability to donate to a charity directly from an IRA as an RMD, without paying taxes or showing the amount donated as income. Such as donation also is not tax deductible if the individual itemizes deductions.
- Estate Tax Exemption for 2017 is indexed up to $5,490,000 (compared to 5,450,000 for 2016). The annual exclusion will remain at $14,000 for 2017. Vicki Becky also addresses estate tax rules and regulations in her article this quarter.
- Retirement Fund Rollovers – When moving retirement funds from one account to another, you have 60 days to complete the transfer. In the past, sometimes funds have not been added to the receiving account within the 60-day window for reasons that were out of the account owner’s control. Examples of these appear below. The new IRS rules described in Revenue Procedure 2016 – 47 allow for self-certification in certain cases of late 60-day retirement contribution roll-overs. This eliminates the need for some excessive documentation, by permitting the taxpayer to self-certify that the transfer occurred according to the rules. Examples of situations in which this could happen include:
- The financial institution receiving the contribution or making the distribution to which the contribution relates committed an error.
- The distribution was made in the form of a check, but that check was misplaced and never cashed.
- The distribution was deposited into an account that the taxpayer mistakenly thought was an eligible retirement plan and the funds remained in that account.
- The taxpayer’s principal residence was severely damaged.
- A member of the taxpayer’s family died.
- The taxpayer or a member of the taxpayer’s family was seriously ill.
- The taxpayer was incarcerated.
- Restrictions were imposed by a foreign country.
- A postal error occurred.
- The distribution was made because of a levy under Internal Revenue Code Section 6331, and the proceeds of the levy have been returned to the taxpayer.
- The party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer’s reasonable efforts to obtain the information.
Watch Out For New Fraud Scams
Just because you see it in print, doesn’t mean it’s true or authentic. We have seen an increase in the number of incorrect notices that appear to be coming from the IRS and Iowa state government agencies, but which are totally false. If you receive one of these, it is wise to provide it to one of our professionals to verify not only the accuracy of the notice but also the authenticity of the notices. Not only are we seeing and hearing about notices from the office regulatory agencies, but we are also hearing that scammers are starting to pose and attack using these written methods, in addition to fraudulent phone calls.