On June 29, President Obama signed into law two major trade bills: (1) the Trade Preference Extension Act of 2015 (TPE); and (2) and the Trade Priorities and Accountability Act of 2015 (TPA). The bills contain a variety of tax provisions, including:
Federal public safety workers can take penalty-free early distributions from governmental plans
In general, any amount paid or distributed out of an individual retirement plan is included in the gross income of the payee or distributee. There is an additional 10 percent "early withdrawal" tax on distributions from qualified retirement plans, taken before the individual reaches age 59-1/2, unless the distribution falls within a statutory exception.
One such exception is for distributions from a defined benefit governmental plan made to a "qualified public safety employee" who has separated from service after attaining age 50. An individual is a qualified public safety employee for this purpose only if he or she is an employee of a state or political subdivision (like a county or city) and his or her principal duties include services requiring specialized training in the area of police protection, firefighting services, or emergency medical services for any area within the jurisdiction of the state (or political subdivision).
Another exception to the early withdrawal tax is for distributions which are part of a series of "substantially equal periodic payments" made at least once per year for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and his designated beneficiary. However, if this exception initially applies but the series of payments is later modified (other than because of death or disability), the early withdrawal tax will be imposed if the distribution method is changed either: (i) both before the close of the 5-year period that begins with the date of the first payment and after the employee reaches age 59-1/2; or (ii) before the employee reaches age 59-1/2.
Effective for distributions made after Dec. 31, 2015, the category of eligible governmental workers who can qualify for the exception is broadened to include specified federal law enforcement officers, customs and border protection officers, federal firefighters, and air traffic controllers who have similarly reached age 50, and the types of plans from which distributions eligible for the exception can be made is broadened to include defined contribution plans and other types of governmental plans. Additionally, the fact that a Federal public safety worker takes such newly permissible distributions won't constitute a modification of substantially equal periodic payments.
Statement from school is requirement for education credits, deduction
Individual taxpayers may qualify for tax credits-the American Opportunity Tax Credit and the Lifetime Learning Credit-or an above-the-line deduction, for qualified tuition and related expenses.
Higher education institutions must provide a return to IRS and a statement to the student, that indicate, among other things, the amount paid by or billed to the student for qualified tuition and related expenses for the tax year. Form 1098-T (Tuition Statement) is used for this purpose.
Under pre-Act law, there was no requirement that the taxpayer receive a Form 1098-T in order to take the credit or deduction.
Effective for tax years that begin after June 29, 2015, the TPE Act requires that, as a condition of receiving the credits or the deduction, a taxpayer receive a Form 1098-T that contains all of the information required by that form.
No penalty for schools that try but fail to get student TIN
Higher education institutions must provide a return to IRS and a statement to the student, that indicate, among other things, the amount paid by or billed to the student for qualified tuition and expenses for the tax year and that include the student's taxpayer information number (TIN). Form 1098-T (Tuition Statement) is used for this purpose.
The IRS imposes penalties for not properly and completely preparing Form 1098-T.
Effective for returns required to be made, and statements required to be furnished, after Dec. 31, 2015, the TPE Act waives the penalty on educational institutions that fail to file Forms 1098-T with accurate TINs of students attending the educational institution if the institution certifies, under penalty of perjury, that it properly requested TINs from the students as required under Treasury regulations.
Increased penalties for failure to file correct information returns
The Code imposes a penalty on taxpayers that fail to file correct information returns (e.g., IRS Form 1099) with IRS, as well as a separate, but parallel, penalty on taxpayers that fail to provide the payee with a correct copy of the information return filed with IRS. The penalties are based on the duration of the delinquency and whether the delinquency was intentional and are subject to maxima that depend on the size of the taxpayer.
Effective with respect to returns and statements required to be filed after Dec. 31, 2015, the TPE Act increases these penalties. For example, where an unintentional delinquency is corrected no more than 30 days after the return due date, the Act increases the per-return penalty from $30 to $50 and the maximum penalty for any calendar year, for a "small" taxpayer, from $75,000 to $175,000.
To learn more about the new trade bills,please contact your professional at UHY LLP in Detroit 313 964 1040, Farmington Hills 248 355 1040 or Sterling Heights 586 254 1040.
Wednesday, April 24, 2019 | 7:30 AM – 9:30 AM EDT | The Hartford Club