Midwestern carpenters would get relief in year-end tax package
The plan lets members take a form of early retirement at age 55 while technically staying as employees to train and oversee younger workers
The massive year-end appropriations and coronavirus relief package contains a holiday gift for about 20,000 Missouri and Illinois employees in the building and construction trades who are members of the St. Louis Carpenters’ Pension Plan.
Tucked deep inside the 5,593-page omnibus bill is bipartisan legislation authored by both sets of Illinois and Missouri senators and seven House lawmakers from the two states that would reverse an IRS decision threatening the tax-exempt status of the carpenters’ pension plan.
The carpenters’ plan allows members to take a form of early retirement starting at age 55, while technically staying as employees to train and oversee younger workers, according to Sen. Roy Blunt, R-Mo., and Rep. Blaine Luetkemeyer, R-Mo., the lead sponsors.
However, since the IRS decision that allowing pensioners to remain employed ran afoul of the rules, promised benefits, including under prior IRS rulings, are now threatened. The omnibus provision would reverse the newer IRS position and allow continued distributions to those early retirees age 55 or older.
The St. Louis carpenters’ plan is in better financial shape than others in the building trades, yet a broader fix for other struggling union pension plans fell apart in the final bargaining on the omnibus bill over how much taxpayers should be on the hook for backstopping retiree benefits.
The Missouri and Illinois carpenters’ fix has a relatively narrow application and negligible revenue impact among some $328 billion in total tax cuts in the sprawling package, according to the Joint Committee on Taxation.
Other targeted benefits for craft brewers, racetrack operators, U.S. multinationals, short-line freight railroads, solar equipment manufacturers and many more account for nearly one-third of the tax package’s cost.
At $33 billion, a permanent extension of a lower threshold to qualify for big medical expense deductions is the most costly of the tax “extenders.” Permanent extensions of excise tax cuts for craft brewers, wineries and distillers would cost $9 billion.
A five-year extension of work opportunity tax credits for hiring ex-felons, veterans and jobless workers receiving public assistance would deliver a $16 billion tax break for hotels, restaurants, retailers and others that are big “WOTC” users.
And while a $6.3 billion provision that would restore for two years 100 percent business meal expensing has been derided as a “three-martini lunch” break and nonsensical during restaurant lockdowns, the bill’s fine print says it would also apply to takeout and delivery. That's a new provision that's not considered an extender, but part of the pandemic relief package.
Checks by next week?
There’s also more broad-based tax relief under the umbrella of pandemic aid, starting with a new round of tax rebate checks worth up to $600 per person that will start flying out the door as soon as the week between Christmas and New Year’s Eve. “I expect we’ll get the money out by the beginning of next week,” Treasury Secretary Steven Mnuchin told CNBC on Monday.
That’s about $166 billion worth of tax benefits, smaller than the $292 billion distributed earlier this year with checks that were larger but still enough to juice holiday shopping in anticipation, at least for those making less than six-figure incomes.
Families that earn lower incomes would also be able to claim larger child tax credits and earned income credits by calculating their incomes based on pre-pandemic earnings in 2019, a roughly $4 billion tax benefit. And parents with flexible spending accounts, who tend to be more well-off, would get to roll their unused dependent care savings into 2021 instead of forfeiting the savings under “use it or lose it” rules.
And households that don’t itemize their deductions, a much larger population after the 2017 tax law doubled the standard deduction and capped state and local deductions, would get a bigger break on charitable donations next year. Married couples filing jointly could deduct $600 in donations, up from $300 this year, at a $2.9 billion cost to Uncle Sam.
And in another holiday gift, workers who didn't have to pay Social Security payroll taxes over the last four months of 2020 because of an order President Donald Trump signed in August will have longer to repay the deferred taxes. The money wouldn’t be due until Dec. 31, 2021, rather than May 1. The JCT estimates that a grand total of $469 million in total payroll taxes was deferred under Trump’s action, indicating very few employers accepted Trump’s offer.
One provision, which by some estimates could deliver about $200 billion in business tax benefits, was the subject of fierce intraparty debate between congressional Republicans and the Treasury Department. In April, the IRS ruled that money spent from forgiven Paycheck Protection Program loans to pay for wages and other expenses could not be deducted from a company’s taxable income; that would be reversed under the final omnibus bill.
Loan recipients will get a rare dual tax gift: If the loans are forgiven, they won’t be treated as taxable income either. This kind of double tax benefit is usually frowned upon, but struggling businesses and their accountants lobbied hard to ensure they wouldn’t be clobbered with unexpected tax bills next year. A Brookings Institution report recently estimated that with the new round of PPP loans, deductibility could amount to a $200 billion benefit for loan recipients.
From a budget standpoint, the point is moot since the JCT assumed forgiven PPP loans would be tax deductible when it made its estimate of the cost of the March bill.
Sen. John Cornyn attracted 41 co-sponsors to his legislation on PPP deductibility, including 13 Democrats. An identical bill attracted 73 co-sponsors, though only one of them, Rep. Henry Cuellar of Texas, is a Democrat.
Worker retention credits
Newly created “employee retention tax credits” are popular with both parties. A maximum tax credit of $5,000 per employee kept on the job was established in the March relief law and estimated to provide nearly $55 billion in tax benefits at the time.
A Senate bill introduced in July would have nearly quadrupled the credit, while the House wanted a sevenfold increase.
The final relief package is less generous but still would nearly triple the maximum benefit to $14,000 per employee. Besides beefing up the tax credit, the new bill would relax eligibility requirements, such as allowing businesses with up to 500 employees to qualify for the tax credits. The earlier bill limited eligibility to companies with up to 100 employees. The enhanced credit would be extended for another six months through June at a $15.5 billion cost.
“This agreement isn’t perfect, but it will offer struggling workers, families, and businesses desperately needed support,” Ways and Means Chairman Richard E. Neal, D-Mass., said in a statement.