President Trump signed the Further Consolidated Appropriations Act, 2020 (H.R. 1865, Act), on December 20, 2019. The tax package included two House-passed year-end appropriations bills to keep the government open and allocate funding across the federal government for fiscal year 2020.

The Further Consolidated Appropriations Act, known as the House amendment to the Senate amendment to H.R. 1865, includes the Setting Every Community Up for Retirement Enhancement (SECURE) Act (H.R. 1994). It also repeals the "Cadillac tax" on high-cost employer-sponsored health coverage and the annual fee on health insurance providers, and extends funding for the Patient-Centered Outcomes Research Institute (PCORI) Trust Fund.

The Taxpayer Certainty and Disaster Tax Relief Act of 2019, which is part of the enacted legislation, includes a repeal of the requirement to increase the unrelated business taxation income (UBTI) of tax-exempt organizations by expenses from qualified transportation fringe benefits. It also extends the employer credit for paid family and medical leave.

Retirement provisions

Some of the most notable provisions of the SECURE Act are the following:

• Allowing unrelated small employers (that do not share the same geographic area or a common trade, industry, or profession) to create "open" multiple-employer plans, to be administered by "pooled plan providers"
• Repealing the prohibition on contributions to a traditional IRA by an individual who has reached age 70 ½
• Requiring employers to permit part-time employees to participate in the employer's 401(k) plan if the employee has at least 500 hours of service for three consecutive years
• Increasing the required minimum distribution age from 70 ½ to 72
• Creating a fiduciary safe harbor for selection of lifetime-income distributions

For a detailed look at the SECURE Act, see Tax Alert 2020-0018.

ACA provisions

Cadillac Tax repealed

The Act repealed IRC Section 4980I, known as the "Cadillac tax," on high-cost employer-sponsored health coverage. After two previous statutory changes delayed the original 2018 effective date, the tax was scheduled to take effect in 2022. The Cadillac tax would have levied a 40% excise tax on the value of employer-sponsored health coverage of more than $10,200 (estimated to be indexed to about $11,200 in 2022) for self-only coverage or $27,500 (about $31,150 in 2022) for family coverage.

Implications

Although the excise tax was repealed, reporting of the value of employer-provided coverage on the Form W-2 in Box 12, using Code DD, did not change. As a result, employers should continue to report the value on Form W-2. Because the tax never took effect, employers do not need to make any changes. However, we expect employers to continue to grapple with managing the rising costs of providing employee health coverage, despite the absence of excise tax implications.

Health insurance provider tax repealed

The Act also repeals ACA Section 9010 for calendar years beginning in 2021. ACA Section 9010 imposes an annual fee on covered entities insuring US health risks, generally including all health insurance issuers that write group or individual coverage, including insurers receiving premiums from government programs, such as Medicare and Medicaid. The health insurance provider tax was first payable in 2014, but there was a moratorium on the fee in 2017 and the fee was suspended in 2019. The fee is treated as a nondeductible excise tax. The amount of the tax is based on the relative amount of premiums for US health risks that the insurer receives.

Implications

The repeal of ACA Section 9010 will be welcome news to health insurance issuers. Because the repeal is first effective in 2021, the 2020 fee will still be due.

PCORI fee extended

The Act extends the tax imposed on health insurance policies and self-insured health plans to fund the Patient-Centered Outcomes Research Trust Fund for an additional 10 years. The PCORI fee is determined by applying an annually adjusted dollar amount to the number of covered lives in a health plan. For plan years ending from October 1, 2018 through September 30, 2019, the dollar amount was $2.45 per covered life. The fee is paid once annually on the Form 720 due July 31. The tax was scheduled to expire for policy and plan years ending after September 30, 2019.

Implications

The PCORI fee will continue to be owed by health insurers and self-insured plans through plan and policy years ending before October 1, 2029.

Transportation fringe benefits

The Act retroactively repeals IRC Section 512(a)(7), which required the unrelated business taxable income (UBTI) of tax-exempt organizations to be increased by the expense of providing qualified transportation fringe benefits or an on-premises athletic facility to the extent IRC Section 274 would disallow the deduction. Often referred to as the "church parking tax" because it applied to churches, among other non-profits, IRC Section 512(a)(7) was enacted in the Tax Cuts and Jobs Act of 2017 (TCJA) alongside IRC Section 274(a)(4), which denies a deduction for the costs of providing a qualified transportation fringe benefit. Qualified transportation fringe benefits currently include qualified parking, commuter highway vehicles, and transit passes. As discussed in Tax Alert 2018-2497, IRS issued initial guidance in 2018 on the allocation of certain parking costs for purposes of both provisions.

Implications

Tax-exempt organizations will be thrilled at the retroactive repeal of IRC Section 512(a)(7), which will allow those that have already paid the tax to seek refunds. IRC Section 274(a)(4) has not been repealed. As a result, deductions for the cost of qualified transportation fringe benefits continue to be disallowed.

FMLA provisions

The Act extended the employer credit for paid family and medical leave under IRC Section 45S until December 31, 2020 (it was due to expire at the end of 2019).

Implications

Many employers have been reluctant to modify their paid family leave programs to qualify for the credit because IRC Section 45S was enacted as a two-year measure. However, employers should recall that the work opportunity tax credit was first created in 1996 as a one-year credit and has been repeatedly extended since then. Given the challenges of qualifying for this credit, the extension may not change the calculus for most employers. For more detail on IRS guidance on Section 45S, see Tax Alert 2018-1957.

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