Historical Tax Notes

This document lists some of the important tax changes that occurred over the previous years. Many of these changes are no longer law.

Major Tax Acts

Covid-19 Distributions

Section 2202 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act treats Covid-19 as a qualified natural disaster, so it provides that the 10% early withdrawal penalty does not apply to a distribution of up to $100,000 made during 2020 to a qualified individual because of Covid-19. A qualified individual is an individual, spouse, or dependent diagnosed with Covid-19 or who has suffered financially, because of reduced or eliminated work hours or because childcare is unavailable, due to Covid-19.

These Covid-19 distributions may be recontributed to the tax-advantaged retirement plan during the 3-year period starting the day after the withdrawal. Recontributed amounts are treated as if the plan beneficiary received an eligible rollover contribution and, within 60 days, transferred the amount to a qualified retirement plan as a direct trustee-to-trustee transfer. Any distribution not recontributed is included as taxable income, but ratably over the 3-year period after the withdrawal or the taxpayer can elect to pay tax on the entire distribution by the filing date for tax year 2020.

This page lists the major changes in tax law, starting in 2020.

• Revenue Procedure 2021-45

Taxpayer Certainty and Disaster Tax Relief Act of 2019

Source: Taxpayer Certainty and Disaster Tax Relief Act of 2019

This Act is divided into the following sections:

• Tax Relief and Support for Families and Individuals
• Employment, Economic Growth, and Community Development Incentives
• Incentives for Energy Production, Efficiency, and Green Economy Jobs
• Extending Certain Provisions Expiring in 2019
• Reduces the Unified Tax Credit
• Provides Disaster Tax Relief

Here are some of the highlights of this Act that applies to most individuals.

Tax Relief and Support for Families and Individuals

• Change the expiration date of the exclusion from gross income of discharge qualified principal residence indebtedness from January 1, 2018 to January 1, 2021.
• Extends the expiration of the treatment of mortgage interest premiums as qualified residence interest from December 31, 2017 to December 31, 2020.
• Reduces the medical expense deduction for from 10% to 7.5% until January 1, 2021.
• Extends the qualified tuition and related expenses deduction from 2017 to December 31, 2020.

Incentives for Energy Production, Efficiency, and Green Economy Jobs

• Extends a Nonbusiness Energy Property Credit from 2017 to December 31, 2020, and changing the Uniform Energy Factor from 2.02 at least 2.2.
• Extends the energy-efficient homes credit from 2017 to December 31, 2020.

Extending Certain Provisions Expiring in 2019

• Extends the Employer Credit for Paid Family and Medical Leave from 2019 to December 31, 2020.
• Extends the Work Opportunity Credit from 2019 to December 31, 2020.
• The Credit for Health Insurance Costs of Eligible Individuals has been extended from 2020 to January 1, 2021.

Reduces the Unified Tax Credit

• The increased unified tax credit enacted by the Tax Cuts and Jobs Act will expire on January 1, 2023, instead of 2026.

Provides Disaster Tax Relief

• Allows tax-favored withdrawals from retirement plans, called qualified disaster distributions. A qualified disaster distribution will not be penalized if the distribution does not exceed $100,000 over the aggregate amount received by an individual for all prior taxable years for each qualified disaster. Also, the aggregate amount of qualified disaster distributions from all plans maintained by an employer or any member of a control group that includes the employer cannot exceed $100,000 for each individual.
• Qualified disaster distributions can be repaid within 3 years of receiving such distributions, in which case, the repayment will be treated as a qualified rollover, equivalent to a direct trustee-to-trustee transfer within 60 days of the distribution.
• Unless the taxpayer chooses otherwise, the income from a qualified disaster distribution will be included in gross income ratably over a 3-year period.
• The limit for loans from qualified plans has been increased from $50,000 to $100,000.
• Applies an automatic 60-day extension for filing taxes.

Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019

Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 (SECURE Act) was signed into law on December 20, 2019, with most provisions taking effectJanuary 1, 2020. Most provisions improve the usefulness of retirement accounts for participants and increases the flexibility and reduces the costs of setting up retirement, accounts by employers. It also reduces liability for employers, especially for those who provide a lifetime income product, such as an annuity or other insurance product.

For taxpayers:

• The age for starting required minimum distributions (RMDs) has been increased from 70½ to 72, including those who will be 70½ in 2020;
• Contributions to a traditional IRA can now be made by participants older than 70½, as long as participant has earnings from work. However, RMDs still have to be taken by people at least 72 years old.
• Taxable amounts paid for graduate or postdoctoral study, such as a fellowship or stipend, count as compensation for IRA contributions.
• Beneficiaries of tax-deferred retirement plans must receive the full distribution within 10 years after the death of the employee or account holder; who died after 2019. Exceptions to the 10-year distribution rule include special beneficiaries, such as a surviving spouse, minor child, a disabled or chronically ill beneficiary, and beneficiaries not more than 10 years younger than the deceased retirement participant.
• The portability of retirement plans has been increased by allowing the lifetime income investment of a qualified defined contribution plan to be rolled over into the 401(k) of another employer or an IRA.
• $5000 of distributions from qualified retirement plans can be penalty-free if used to pay for expenses of a birth or an adoption, if the distribution was within 1 year of the birth or adoption; and withdrawals can be repaid as a rollover contribution to an eligible defined contribution plan or IRA.
• After the student graduates, if there is any money remaining in the 529 plan, then up to $10,000 from 529 plans can be used to repay student loans. 529 funds can also be used to pay for certain apprenticeship programs. Both changes apply to distributions after 2018.
• The Secure Act increases the penalty for failure to file federal tax returns to the lesser of $400 or 100% of the tax due, for returns due in 2020 or after.
• The Tax Cuts and Jobs Act (TCJA) applied the marginal tax rates of trusts to unearned income of children subject to the kiddie tax. This is been repealed, retroactively applied to 2018 and thereafter. Instead, the applicable tax rates that apply before the TCJA will apply. The lower AMT exemption for children subject to the kiddie tax, whether they paid the kiddie tax or not, has also been replaced, for 2018 through 2025, by the AMT exemption that applies for everyone else. Previously, the AMT exemption for children subject to the kiddie tax was $7500 + earned income.

For employers:

• Pension and benefit plan administrators must disclose the plan's lifetime income stream to the beneficiaries.
• Long-term, part-time workers can participate in 401(k) plans, if the employee worked more than 1000 hours in one year or 500 hours over 3 consecutive years.
• The new law adds a retirement plan credit for smaller employees who wish to start a retirement plan. The credit is worth $250 per employee who is not highly compensated, with a minimum credit of $500 and a maximum credit $5000, for up to 100 employees over a 3-year period starting after 2019. This credit applies to SEP, SIMPLE, 401(k) and profit-sharing plans. If the retirement plan includes automatic enrollment, then there is an additional credit of up to $500.
• For employer-sponsored retirement plans, the maximum auto enrollment contribution has been increased from 10% of wages to 15%.
• Benefit statements must include a lifetime income disclosure at least once during any 12-month period, that shows monthly payments that each participant would receive if the total amount were used to provide a lifetime income, including as a single life annuity and a qualified joint and survivor annuity.
• The new law facilitates small business owners to join open multiple employer plans (MEPs) by allowing unrelated employees to participate. The new law also lowers risk for small business owners by eliminating the IRS’s one-bad-apple rule. Previously, all employers of the plan could suffer adverse tax consequences if just 1 business participant failed to satisfy the rules of the MEP.