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US Congress Passes Huge Fiscal Package

by Mike Godfrey,, Washington

21 December 2015

The US House of Representatives and Senate have approved the bipartisan Protecting Americans from Tax Hikes (PATH) Act and the Omnibus spending bill, which together make permanent or renew the package of "tax extenders" that expired at the end of 2014, and suspend three Obamacare taxes, at a 10-year cost of USD680bn.

The enhanced USD3,000 child tax credit (CTC), the American opportunity tax credit (AOTC) for post-secondary education expenses, the earned income tax credit (EITC), and the deduction of state and local general sales taxes have all been made permanent. The enhanced CTC, which was scheduled to expire at the end of 2017, has not been indexed to inflation, as had been requested by Democrat lawmakers.

There are also tax compliance provisions. For example, the deadline for employers to report wage information on forms W-2, W-3, and form 1099-MISC has been brought forward to January 31 of the year following the calendar year to which the return relates. This provides additional time for the IRS to review EITC and CTC refund claims to reduce fraud and improper payments.

The charitable sector will benefit from a range of permanently extended tax breaks, including the deductions for contributions of real property for conservation purposes, for tax-free distributions from individual retirement plans, and for contributions of food inventory. There was also a permanent extension of the basis adjustment to stock of S corporations making charitable property contributions.

For businesses, the PATH Act permanently extends the research and development tax credit. In addition, beginning in 2016, eligible small businesses (USD50m or less in gross receipts) will be able to claim the credit against their alternative minimum tax liability, and certain small businesses will be able to use the credit against their employer's payroll tax liability.

Section 179 tax relief, which allows small businesses to immediately deduct the cost of investments in property and qualifying equipment, has also been permanently extended. As a result of its expiry at the end of 2014, the threshold for the deduction had fallen from USD500,000 to USD25,000. The USD500,000 limit is also indexed to inflation.

Meanwhile, the new markets tax credit, the work opportunity tax credit, and bonus depreciation have been extended to the end of 2019. The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016, and 2017, before reducing to 40 percent in 2018, and 30 percent in 2019.

Most of the remaining provisions in the 50-plus package of tax extenders have been granted two-year extensions. These include the American Samoa economic development credit, the deduction allowable with respect to income attributable to domestic production activities in Puerto Rico, and the increase in the "cover-over" limit of rum excise taxes to Puerto Rico and the Virgin Islands.

Two-year extensions have also been granted to existing tax breaks promoting renewable energy, such as the excise tax credits relating to alternative fuels, the biodiesel and renewable diesel tax credits, and the production tax credit that is relied upon by the wind industry (for facilities for which construction commences by the end of 2016).

Finally, three of the controversial taxes within the Affordable Care Act (ACA) are to be neutralized. The PATH Act provides that the 2.3 percent excise tax imposed on the sale of medical devices will not apply to sales during 2016 and 2017, while the Omnibus bill achieves a delay to 2020 in the effective date of the ACA's 40 percent "Cadillac tax" on high-cost healthcare plans sponsored by employers. Furthermore, there will be a one-year suspension in 2017 of the annual excise tax imposed on health insurance providers, known as the health insurance tax.

TAGS: individuals | compliance | tax | small business | business | sales tax | tax compliance | energy | law | insurance | insurance tax | Samoa | Virgin Islands | tax credits | excise duty | health care | education | American Samoa | Puerto Rico | United States | tax breaks | research and development | Tax

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