Many of the provisions of the 2012 American Recovery and Reinvestment Act (ARRA) have expired, or are expiring on December 31, 2015. In the United States, special rules govern the expiry of tax provisions and tax breaks, typically by regular scheduled “sunset” dates. A Special Rules Section is added to every tax statute that establishes a date by which the provision will end (or expire). In cases such as this, most provisions sunset within a reasonable amount of time. Expiration dates are based on the length of time necessary to use the provision’s primary purpose and there is an overall trend for provisions to expire after a long period of time.
Although there is an expectation that many provisions will expire on December 31, 2015, many provisions have sunset dates that will be accelerated (meaning the provisions will expire much sooner than allowed under statutory limitations). The expiry date of these provisions is then set at the time when the specific benefit is “become effective” (or commenced). That is, the expiration date is either when the provision becomes effective (or commenced), or when the Secretary of the Treasury (or the IRS for certain provisions) files a report containing all required information for that specific benefit (or commence[3]).
For some provisions, the Secretary of the Treasury (or the IRS for certain provisions) may have not completed its information reporting obligations until well after the date when the provision becomes effective. Under the special rules section, the IRS must file a report on those provisions for the periods after the actual date of the enactment of the applicable provision. This means that some expiry dates may be accelerated and some provisions will end much sooner than required by statute.
Expiration of Certain Tax Breaks for Employee Benefits
There is no prohibition against Congress making an exception to the normal expiry procedure for a provision, for a limited time or in certain circumstances. In the case of the Expiration of Certain Tax Breaks for Employee Benefits (S. 489, 113th Congress), the sunset date of the specific benefit has been accelerated to the date that the particular tax law provision becomes effective (or commenced).
The special rules section for S. 489 outlines the circumstances and the rules that govern when the end date of a specific benefit is accelerated, and explains that the Secretary of the Treasury (or the IRS for certain provisions) may have not completed its information reporting obligations until well after the date when the specific benefit becomes effective (or commenced).
For some provisions, the Secretary of the Treasury (or the IRS for certain provisions) may have not completed its information reporting obligations until well after the date of the enactment of the applicable provision. This means that some expiry dates may be accelerated and some provisions will end much sooner than required by statute.
Expiration of Some Part of the Ryan-Murray Comprehensive Legislation
The expiration date of Section 197U of the Ryan-Murray Comprehensive Legislation (H.R. 3354) has been deferred. As of December 31, 2015, no employee or spouse may contribute to a 401(k) plan or a Thrift Savings Plan without paying the applicable withholding tax, even if the policy is in an employer plan or a Thrift Savings Plan for which the contributions were made.
Although this is not a specific benefit, an employer-sponsored benefit is in fact considered to be a specified benefit, and no tax on the contributions is due to the employee until the policy is placed in a trust or other managed account. As a result, since there is no deadline to make this contribution, deferring the date of the automatic increase in the plan withholding tax is appropriate and avoids uncertainty for both the employer and the employee.
Schedule An Income of Certain Taxpayers with Unreserved Distributions
Certain taxpayers that receive payments from certain qualified plan and individual retirement accounts have a reasonable basis for believing that they would not owe additional tax if the payments were included on a Schedule A rather than on a Schedule C or D. However, under section 413A(f), the obligation of withholding the distribution is imposed, and the taxpayer must withhold tax on the amount that was distributed. These taxpayers may wish to consider placing distributions on a Schedule A to avoid incurring the income-tax liability. The Internal Revenue Service has recently adopted a memorandum which provides guidance on the application of the IRC Section 413A(f) withholding requirement.
Non-Qualified Expense Deduction for Social Security Benefits
Until December 31, 2019, a non-qualified expense deduction is available for a partial payment of benefits for qualified retirement plans and Individual Retirement Accounts (IRA). The deduction amount for benefits paid in full is limited to the lesser of (i) the excess of the total amount of qualified retirement plan or IRA benefits paid in the calendar year on any calendar month, or (ii) $250,000 (or an amount equal to the lesser of (i) the total of qualified distributions (including qualified pension benefits and qualified annuity interest) and qualified annuity premiums and (ii) the amount that would have been paid under a specified rule if the tax year had begun on December 31, 2015).
For beneficiaries that have previously filed a 2010 tax return and Social Security records reflect a partial payment, the deduction is limited to the amount of the non-qualified benefit and the sum of the portion of the partial payment that was received in excess of the amount required to be withheld under section 194D, or the sum of the amounts required to be withheld under section 194C if the partial payment was received after December 31, 2010, or under section 194D-2 if the partial payment was received before December 31, 2010. An individual may qualify for the partial payment deduction if:
- For a beneficiary with fully taxable Social Security benefits, the taxpayer receives an amount equal to 50% of all the following amounts: (1) the excess (if any) over the amount required to be withheld in Section 199A©(1) for any other qualified plan or IRA; and (2) the excess (if any) over the amount of qualified distributions (including qualified annuity premiums and qualified annuity interest) or qualified pension benefits to which the person was entitled in the calendar year, if available in the recipient’s Social Security records.
If any amount received in excess of the amount required to be withheld under section 194A for any other qualified plan or IRA were paid to the beneficiary, the taxpayer must identify the fair market value of all the benefits that were over-withheld in Section 199A©(1) or Section 199A-A. The fair market value of the amount is defined as the fair market value of all benefits that would have been payable to the beneficiary in the taxable year and that were not over withheld.
For benefits received under a qualified annuity contract, the fair market value of the contract is defined as the fair market value of the contract, with applicable adjustments, measured at the contract’s option date. The fair market value is determined using the Plan Sponsor’s financial statements for the period, and the fair market value of each payment during the period is adjusted to reflect the current value of the annuity contract.
For other assets, the fair market value is determined using the Plan Sponsor’s financial statements. The fair market value of the assets may include adjustments to reflect the present value of accumulated but unvested benefits, including vested and uncased deferred shares of variable annuity of the Plan Sponsor or the contributions made by the Plan Sponsor to the beneficiary’s retirement account or a qualified annuity trust.
Employee Retention Tax Credit Is Currently Available for a Limited Time Only
The employee retention tax credit is available to U.S. employers who make contributions to, or make contributions to qualified pension or IRA plans of an eligible plan participant. An eligible plan is one that (1) is an “qualified pension plan” as defined in section 475€ of the Internal Revenue Code (as amended, 24 U.S.C. § 211€), or (2) is an “eligible retirement plan” as defined in section 399A© of the Internal Revenue Code (as amended, 24 U.S.C. § 401A©) for at least three consecutive years. An eligible retirement plan is an individual retirement account and an IRA.
To be eligible for the credit, the employee must:
- Be an employee, other than an unincorporated business or other qualifying entity, for whom the employee is eligible to make a Section 199A deduction; and
- To receive at least $600 in wages (or $1,200 for a married couple) or $1,000 in taxable compensation.
To be eligible for the credit, the employer must make contributions to, or make contributions to, a qualified retirement plan or an eligible annuity contract with an eligible participant for the employee or employee’s eligible dependents for a period that is
(1) a period of 12 consecutive months beginning on April 1 of the tax year, or
(2) for an employee who receives an annual bonus equal to at least 20% of the aggregate amount of the bonus and of taxable compensation, whichever is less; and
(3) if such contribution(s) are made to an eligible retirement plan or an eligible annuity contract, must be made for the employee’s or employee’s eligible dependents and must be made before December 31 of the taxable year.
The employer does not have to make a contribution to the employee’s or employee’s eligible dependents’ IRA(s) to qualify for the credit. Eligible retirement plans or annuity contracts must be specified in the plan or plan beneficiary’s IRA(s) financial statement on Schedule A as defined in section 619(d) of the Internal Revenue Code (as amended, 24 U.