Congress passed the Consolidated Appropriations Act as an omnibus bill, including the entire PATH Act (Protecting Americans from Tax Hikes) as an amendment. The President signed it the same day, December 18th, 2015. While there were no broad, sweeping reforms on the scale of those in the Affordable Care Act, the omnibus law does contain a number of provisions that have a direct impact on issues of concern to employers, HR professionals and benefits advisors.
Work Opportunity Tax Credit Is Extended
The Work Opportunity Tax Credit grants employers a 40 percent tax credit on the first $6,000 of wages paid to each new hire from one of nine targeted groups: Veterans, recipients of Temporary Assistance for Needy Families, Food Stamp recipients, residents of federally-designated Rural Renewal Counties or Empowerment Zones, ex-felons hired within 1 year after conviction or release from prison, vocational rehab referrals, Supplemental Security Income recipients, and summer youth employees age 16 and 17 who live within one of the federally-designated Empowerment Zones.
This translates to a $2,400 tax credit per eligible employee. The PATH Act extends the tax credit through the end of 2019. However, you can’t use this program for hiring certain relatives or dependents, nor for former employees or for majority owners of the business.
For more information on the Work Opportunity Tax Credit, see this informational publication from the U.S. Department of Labor.
Employer Credit for Differential Pay for Active Military Service Personnel
The new law permanently extends the tax credit for employers who pay differential pay to reserve component military employees who are called to active duty. Some employers pay the difference between military pay and civilian pay when employees get called to active duty. The credit is equal to 20 percent of eligible wage differential payments paid during the year.
Tax on “Cadillac” Health Plans Delayed
With the Omnibus bill, Congress delayed the 40 percent excise tax on so-called “Cadillac” health care benefits for two years. This tax was among the controversial passages of the Affordable Care Act, and threatens to disrupt or destroy the market for these richly-benefit-laden health care plans. The tax will now not take effect until 2018.
The E-Verify Program is Extended for One Year.
Employers will continue to have access to the E-Verify system to ensure that job applicants are legally cleared to work within the United States. The E-Verify online system compares information from employee I-9 forms to information on file with the Department of Homeland Security and Social Security Administration. Using this system may help employers avoid hiring illegal immigrants.
Commuter and Parking Benefits Increased to $255 per Month
Previous legislation had increased the maximum monthly exclusion for van pooling services mass transit passes to $250 per month. But that increase expired at the end of 2014, so until the PATH Act became law, the maximum amount employees could defer tax-free reverted to $130 per month.
The PATH Act retroactively increases the allowable pretax withholding for commuter highway vehicle and public transit passes to $250 per month for 2015, and increases it to $255 per month for 2016. Likewise, the allowable pretax withholding for qualified parking benefits increases from $250 per month to $255 in 2016.
Note: Congress’s decision to retroactively increase the allowable pretax benefit for commuters from $130 to $250 per month for 2015 sounds like a good deal – except when you come to try to implement it. By waiting until this late in the year to make the increase, with perhaps one more pay period left in the year for most employees, it’s not going to do workers much good.
The Indian Employment Credit is Extended
The Indian Employment Credit has been extended through 2016. This credit offsets the first $20,000 of qualified wages and employer-paid medical insurance premiums who are members of a Native American tribe and who live on or near a reservation and who work for employers on a reservation.
Other provisions allow students to use Section 529 Plans to purchase computers and related technology without having to pay taxes on the withdrawal. Such purchases will now be treated as qualified higher education expenses. The law also allows 529 Plan owners to transfer tuition refunds back into the Section 529 plan, provided they do so within 60 days. The Omnibus law also makes permanent a $3,000 child tax credit, which would otherwise have expired at the end of 2017, the American Opportunity tax credit and certain provisions of the Earned Income Credit. The law also enhances the ability of IRA owners to donate up to $100,000 in IRA assets per year to charities without a tax penalty.
A more complete list of tax-related provisions of the new law is available from the Journal of Accountancy here.