Congress and President Obama Agree on Tax Extenders Legislation

Dec 22, 2015
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Included in the omnibus funding bill passed by Congress last week and signed into law by President Barack Obama was the Protecting Americans from Tax Hikes (PATH) Act of 2015—a bill that makes permanent and extends several tax provisions important to human resources professionals.

Many of the provisions included in the PATH Act have been extended repeatedly over the past two decades. Employers will now gain certainty related to the tax treatment of several employer-sponsored benefits, thanks in large part to the fact that many of these measures are now permanent provisions in the tax code. Key provisions of interest to HR include:

  • Providing Parity for Transit Benefits—Permanently extends the monthly limit on the exclusion from tax for transit pass and vanpool benefits to $250, which is the same tax-free monthly dollar limit on the exclusion for qualified parking benefits. SHRM advocated in support of the transit benefits provision.
  • Allowing Tax-Free Distributions from Individual Retirement Accounts (IRAs) for Charitable Purposes—Permanently extends the ability for individuals 70 ½ years and older to exclude from gross income qualified charitable distributions from an IRA account of up to $100,000 annually.
  • Providing Employer Credit for Differential Pay for Active Military Service Personnel—Permanently extends the tax credit for differential pay provided to an employee (the difference in pay between military and civilian pay) who is called to active-duty military service. Any employer (previously limited to small employers) is now allowed a credit against its income tax liability for a taxable year in an amount equal to 20 percent of the sum of the eligible differential wage payments for each of the employer’s qualified employees during the year. SHRM advocated in support of the differential in pay credit.
  • Extending the Work Opportunity Tax Credit (WOTC)—Extends the WOTC until Dec. 31, 2019, allowing employers to receive a tax credit for hiring individuals from one of nine targeted groups. Employers would be eligible for a 40 percent credit on the first $6,000 of wages paid to such individuals, for a maximum credit of $2,400 per eligible employee hired by employers. SHRM advocated in support of the WOTC provision.
  • Extending the Indian Employment Tax Credit—Extends until Dec. 31, 2016, the credit against income tax liability for the first $20,000 of qualified wages and qualified employee health insurance costs paid or incurred by the employer with respect to certain employees. SHRM advocated in support of the credit.

The bill also made changes to filing requirements related to W-2s and W-3s. Specifically, beginning Jan. 31, 2017, employers will be required to file W-2s and W-3s by Jan. 31 of the year following the calendar year to which the returns relate. Currently, employers have until Feb. 29 to file the documents. Lastly, the legislation includes a provision to allow rollovers from 401(k) plans to SIMPLE IRAs in the hopes to incentivize retirement savings. SIMPLE IRAs allow employees and employers both to contribute funds and are ideal for small businesses that do not have a qualified retirement plan.

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