New laws you should know about for the new year.

Over the holiday season while you were busy celebrating, Congress passed multiple new laws that have many provisions to provide tax breaks to your small business. The new laws were the “Further Consolidated Appropriations Act, 2020”, the “Taxpayer Certainty and Disaster Tax Relief Act”, and the “Setting Every Community Up for Retirement Enhancement Act”. Below we will go over some highlights of these new laws and how they can affect you and your business.

Long-term part-timers can participate in 401(k)s.

Under current law, employers generally can exclude part-time employees (those who work less than 1,000 hours per year) when providing a 401(k) plan to their employees. A qualified retirement plan can generally delay participation in the plan based on an employee attaining a certain age or completing a certain number of years of service but not beyond the later of completion of one year of service (that is, a 12-month period with at least 1,000 hours of service) or reaching age 21.

Qualified retirement plans are subject to various other requirements involving who can participate. For plan years beginning after December 31, 2020, the new law requires a 401(k) plan to allow an employee to make elective deferrals if the employee has worked with the employer for at least 500 hours per year for at least three consecutive years and has met the age-21 requirement by the end of the three-consecutive-year period. There are a number of other rules involved that will determine whether a part-time employee qualifies to participate in a 401(k) plan.

The employer tax credit for paid family and medical leave is extended.

Tax law provides an employer credit for paid family and medical leave. It permits eligible employers to claim an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave. The credit is equal to 12.5% of eligible wages if the rate of payment is 50% of such wages and is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payment exceeds 50%. The maximum leave amount that can be taken into account for a qualifying employee is 12 weeks per year.

The credit was set to expire on December 31, 2019. The new law extends it through 2020.

The Work Opportunity Tax Credit (WOTC) is extended.

Under the WOTC, an elective general business credit is provided to employers hiring individuals who are members of one or more of 10 targeted groups. The new law extends this credit through 2020.

The medical device excise tax is repealed.

The Affordable Care Act (ACA) contained a provision that required that the sale of a taxable medical device by the manufacturer, producer or importer is subject to a tax equal to 2.3% of the price for which it is sold.

The new law repeals the excise tax for sales occurring after December 31, 2019.

The high-cost, employer-sponsored health coverage tax is repealed.

The ACA also added a nondeductible excise tax on insurers when the aggregate value of employer-sponsored health insurance coverage for an employee, former employee, surviving spouse or other primary insured individual exceeded a threshold amount. This tax is commonly referred to as the tax on “Cadillac” plans.

The new law repeals the Cadillac tax for tax years beginning after December 31, 2019.

Stay tuned

While these features of the new laws can be great for your business, they are not the only tax breaks the laws have to offer. We will continue to update you on them. If you want advice on the best way to use these changes to your advantage, please contact your Rudler. PSC advisor 859-331-1717.