On December 20, 2019, President Trump signed into law The Further Consolidated Appropriations Act, 2020 (FCAA). This legislation includes significant tax provisions that affect tribes and their members as outlined below. Now is also a good time to reflect on the requirements for filing the new 2020 Form W-4 for members.
Extended Tax Provisions
Thirty-four expired or scheduled-to-expire tax provisions have been extended by the law, including several frequently utilized by tribes.
Most of the extended provisions will now expire on December 31, 2020. Tribes should continue to urge Congress to permanently renew the credits as they provide valuable business development opportunities for Indian Country.
Some of the extended provisions include:
- The New Markets Tax Credit
- The Work Opportunity Tax Credit
- Indian Employment Credit
- Empowerment zone tax incentives
- Indian Employment Credit accelerated depreciation for business property on Indian reservations
- Production credit for Indian coal facilities
Kiddie Tax Changes
The new law brings welcome news for minor trust distributions. Beginning in 2018 under tax reform, commonly referred to as the Tax Cuts and Jobs Act (TCJA), a child’s net unearned income—such as minor trust distributions, interest, and dividends—was taxed at trust tax rates. These rates were generally unfavorable to the taxpayer.
Under the new legislation, the trust tax rates no longer apply for taxable unearned income for a child under age 19 by the close of the tax year or who wasn’t a full-time student under the age of 24. Now, a child’s unearned income will be taxed at the parents’ tax rates—if the parents’ tax rate is higher than the tax rates of the child.
A child taxpayer may also elect for the change to apply retroactively to tax years beginning in 2018 or 2019. This might warrant electing to apply the rate to pre-tax reform and amending tribal members’ children’s 2018 income tax returns. Tribal members should also consider electing pre-tax reform rates for a child’s 2019 unearned income tax. A review and analysis of this income is highly recommended for affected members.
New W-4 Reminder for 2020
The IRS recently released the 2020 Form W-4 Employee’s Withholding Certificate.
As a reminder, all new employees must use the 2020 Form W-4. Any change to withholding for existing employees must also be recognized on the 2020 Form W-4. The new Form W-4 has been updated by the IRS to incorporate tax code changes.
All employees should consider revisiting their Form W-4 to see if any adjustments should be made to their payroll income tax withholding. The IRS offers a Tax Withholding Estimator, though it’s currently being updated to incorporate changes made by the newly-enacted FCAA legislation to incorporate the medical and dental revision of the floor to 7.5%, and to incorporate changes made to the mortgage insurance premiums paid.
Important Filing Steps
Before completing the Form W-4, it’s recommended that you encourage your employees to read the instructions. Steps one and five must be completed. Step one covers individual employee personal information and anticipated filing status, such as single or married filing.
This will determine the standard deduction and tax rates used to compute employee withholdings. Step five is including the employee signature and date line.
Steps two, three, and four are optional. We also recommend encouraging your employees to use the Tax Withholding Estimator to ensure income tax is appropriately withheld and any additional withholding can be entered at line 4c.
We’re Here to Help
To learn more about how this legislation could affect your tribe and members, contact your Moss Adams professional.