Recently Enacted Trade Bills Contain Individual and Business Tax Provisions

Two new international trade bills were recently enacted into law last week and another is in the process of reconciliation. The Bipartisan Congressional Trade Priorities and Accountability Act of 2015 and the Trade Preferences Extension Act of 2015 were passed by Congress prior to the July 4th recess. These bills were signed by the President on June 29th. A third trade bill – the Trade Facilitation and Enforcement Act of 2015 – is currently in conference to resolve House and Senate differences.

The enacted bills contain several individual and business tax provisions:

1. Extension of the Health Coverage Tax Credit (HCTC) under IRC sec 35.

This is a credit which may apply to displaced workers who have lost jobs due to foreign competition and are:

• Receiving Trade Adjustment Assistance (TAA) benefits.
• Older taxpayers receiving wage subsidies under an alternative trade adjustment assistance program (ATAA) under the Department of Labor (DOL).
• Pension beneficiaries of those 55 or older under the Pension Benefit Guaranty Corporation (PBGC).

The credit is taken on Form 8885 and is 72.5% of the premiums for qualified health insurance paid each month for the worker, spouse and qualifying family members. The HCTC expired after 2013 but was retroactively extended in late 2014. The new law extends the credit for months beginning before January 1, 2020. It also includes rules coordinating this credit with the ACA premium tax credit so as to avoid a double benefit.

2. Child Tax Credit. The new law provides that a taxpayer who elects to exclude gross income under the IRC sec 911, Foreign Earned Income or Foreign Housing Costs, is not eligible to claim the refundable portion of the child tax credit for the tax year. This is effective for tax years beginning after December 31, 2014. This new rule will require the taxpayer to make a decision between taking the Section 911 exclusion or taking the benefit of the refundable child tax credit. This will apply to middle to lower income taxpayers and those with limited amounts of foreign earned income.

3. Education Tax Breaks. Under the new law, the IRC sec 25A, American Opportunity Tax and Lifetime Learning Credits, and IRC Section 22, Tuition and Fees Deduction, are not permitted where the taxpayer does not have a valid information return (Form 1098-T) from the educational institution. The law is effective for tax years beginning after the date of enactment – essentially the 2016 tax year. The purpose of this change is to have taxpayers delay the filing of their tax returns until these forms are received. The government has identified significant errors in filings for these benefits.

In a related provision, the Act eliminates certain penalties for educational institutions which fail to file information returns with accurate taxpayer identification numbers for students where it certifies that it requested the information but could not obtain it from the student. This provision is effective for returns required to be filed with the IRS and furnished to students after December 31, 2015.

4. Information Returns. The Trade Act changes the penalties for information returns and payee statements required to be filed and furnished.

• Penalty for a single failure increases from $100 to $250.
• The maximum penalty for all failures increases from $1.5 million to $3 million.
• However, if the failure to file a correct information return is due to intentional disregard of the law, the penalty is $250 for each failure with no cap on the total amount of penalties.
• Where a failure is corrected within 30 days of the required filing date, the penalty increases from $30 to $50. The penalty for all such failures increases from $250,000 to $500,000.

5. Corporate Estimated Tax. Corporations with at least $1 billion in assets, the corporate estimated tax due in July, August or September of 2020 is increased by 8%. The following payment is correspondingly reduced.

6. Public Safety Officers. Under current law, there is an exemption from the 10% penalty for an early distribution from a qualified retirement plan for qualified public safety officers who have separated from service. The new law provides that the exemption will also cover certain federal law enforcement officers, federal firefighters, customs and border protection officers and air traffic controllers. Since many federal public safety officers are eligible for retirement at age 50 after 20 years of service, this provision is intended to provide similar relief. This is effective for distributions made after December 31, 2015.

If you have any questions, please contact Michael D’Addio at (203)781-9665 or [email protected]