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Last month, Congress passed a law with a variety of new provisions providing tax relief to both businesses and employers. The “Further Consolidated Appropriations Act, 2020” was signed into law just before the holidays on December 20, 2019. This Act makes numerous changes to the tax code, including an extension of more than 30 provisions that were set to expire or already expired.
Two other beneficial laws were passed as part of the greater law (The Taxpayer Certainty and Disaster Tax Relief Act of 2019 and the Setting Every Community Up for Retirement Enhancement Act).
To help our clients understand these new laws, we’ve highlighted five aspects:
How can long-term part-timers participate in 401(k)s?
Under current law, employers have the right to exclude part-time employees (those who work less than 1,000 hours per year) when providing a 401(k) plan to their employees. Additionally, a qualified retirement plan can generally delay participation in the plan for employees who reach a certain age or complete a certain number of years of service but not beyond the later of completion of one year of service. For example, a 12-month period with at least 1,000 hours of service or by reaching age 21.
For plan years beginning after December 31, 2020, the new law requires a 401(k) plan to allow an employee to make elective deferrals if the following qualifications are met:
- an employee has worked with the employer for at least three consecutive years at least 500 hours per year
- has reached 21 years of age by the end of the three-consecutive-year period.
Please note there are several other rules involved that will determine whether a part-time employee qualifies to participate in a 401(k) plan.
How has the employer tax credit for paid family and medical leave been extended?
Tax law provides that an employer receive credit for paid family and medical leave. The law permits certain employers to claim an elective general business credit based on eligible wages paid to employees with respect to family and medical leave. The credit is equal to 12.5% of eligible wages if the rate of payment is 50% of such wages and is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payment exceeds 50%. This law also specifies the maximum leave amount to be taken into account for a qualifying employee is 12 weeks per year.
The credit was set to expire on December 31, 2019, but has been extended through 2020.
How long has the Work Opportunity Tax Credit (WOTC) been extended?
Employers hiring individuals who are members of one or more of 10 targeted groups can qualify for an elective general business credit through WOTC. The new law allows this credit to be extended through 2020.
What about the medical device excise tax?
Any taxable medical device sold by the manufacturer, producer or importer is subject to a tax equal to 2.3% of the price for which it is sold, because of a provision in the The Affordable Care Act (ACA). This medical device excise tax originally applied to sales of devices after December 31, 2012.
The new law repeals that excise tax for any sales of taxable medical devices occurring after December 31, 2019.
Is the “Cadillac” health plan tax repealed?
The Affordable Care Act also added a nondeductible excise tax on insurers when the aggregate value of employer-sponsored health insurance coverage exceeded a threshold amount. This tax applied to an employee, former employee, surviving spouse or other primary insured individuals. This tax is commonly referred to as the tax on “Cadillac” plans.
The new law repeals the tax for any tax years beginning after December 31, 2019.
These are only some of the provisions of the new law. We will be covering them in the coming weeks. If you have questions about these changes and how they apply to your tax situation, don’t hesitate to contact us 818-334-8636.