Small Business Taxes & ManagementTM--Copyright 2015, A/N Group, Inc.
Congress recently passed and the President has signed the Trade Priorities and Accountability Act of 2015 and the Trade Preferences Extension Act of 2015. Both laws have tax provisions of some significance.
Trade Preferences Extension Act
There are several provisions in this act.
Child Tax Credit
U.S. citizens or residents who are working and living abroad may be able to exclude up to $100,800 (2015 amount; indexed for inflation) of foreign earned income as well as foreign housing costs ($16,128, 2015 amount).
Under the new law taxpayers who claim the foreign earned income or foreign housing cost exclusion can not claim the refundable portion of the child tax credit. Although eligible for the income or housing exclusion, a taxpayer may elect not to claim the benefit in which case he would be entitled to the refundable child tax credit. While most taxpayers will probably want to take the foreign income exclusion and forgo the tax credit, some might want to elect the opposite. For example, if you're in a relatively low bracket in the current year the tax credit could be worth more than the exclusion. As usual, you'll have to work through the numbers at tax time. This provision was effective on the day of enactment and applies to tax years beginning after December 31, 2014.
Health Coverage Tax Credit
This credit is different than that under the Affordable Care Act. It pertains to taxpayers who qualify under the Trade Assistance Act. That law provides a refundable tax credit (HCTC) of 72.5% of a qualified individual's health insurance premiums for the individual and qualifying family members who have been adversely impacted by foreign trade. (Taxpayers in this position should go to www.doleta.gov/tradeact for more information.)
The new law extends the HCTC retroactively (it expired at the end of 2013) to the start of 2014 and through the end of December, 2019. The new law also includes some provisions dealing with the relationship between the HCTC and the premium assistance tax credit.
Information Return Penalties
This is the provision that will affect virtually every taxpayer owning a business and making payments to independent contractors or for rent. Prior law provided for penalties for failure to file information returns (e.g., Forms 1099-MISC, 1099-R, etc.) of $30 per return if the reporting failure is corrected within 30 days; $60 per return if corrected by August 1; and $100 per return if corrected after that date.
The new law increases the penalties to $50 per return if corrected within 30 days of the due date; $100 per return if corrected after 30 days but before August 1; and $250 if corrected after that date. The penalty caps are also increased to $500,000 for corrections within 30 days; $1.5 million for corrections if after 30 days and before August 1 of the calendar year the return is due and $3,000,000 if corrected after August 1. The new penalties are effective for returns to be filed or furnished after 2015.
If the reporting failure is due to intentional disregard of the rules the penalty is $250 per return and there is no cap. The penalty does not apply to de minimis failures or inconsequential errors. The penalty applies to incomplete, erroneous returns as well as failure to file.
1098-T Required for Education Incentives
Form 1098-T, Tuition Statement, provides information to taxpayers on the amount billed by the institution, the amount paid for qualified tuition by the student, scholarships or grants, whether the student was at least a half-time student, etc. The information is necessary for completing a tax return if the taxpayer is claiming the American Opportunity Tax Credit, the Lifetime Learning Credit, or the tuition and fees deduction. Under the new law, none of these tax incentives could be claimed if the taxpayer does not have a valid From 1098-T from the educational institution at the time the return is filed. For most taxpayers the new requirement is effective beginning with the 2016 tax year (technically, effective for tax years beginning after June 29, 2015).
Trade Priorities and Accountability Act
Part of this bill contains the Defending Public Safety Employees' Retirement Act. Early distributions from qualified retirement plans are subject to a 10 percent penalty. Generally, distributions before age 59-1/2 are subject to the penalty, but there are several exceptions, one being for disability, another is part of a series of substantially equal periodic payments made for the life expectancy of the employer, and another is made to an employee after separation from service after attainment of age 55.
The new law lowers the age 55 requirement to 50 for qualified public safety employees for distributions from a governmental plan (within the meaning of Sec. 414(d)). A qualified public safety employee includes any employee of a State or political subdivision of a State who provides police protection, firefighting services, or emergency medical services for any area within the jurisdiction of such State or political subdivision, or any Federal law enforcement officer, any Federal custos and border protection officer, any Federal firefighter, or any air traffic controller (references to the descriptions of these jobs in the United States Code have not been included here). This provision is effective for distributions after December 31, 2015. The provision also applies to Federal defined contribution plans.
Copyright 2015 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 07/27/15