What Are the Tax Changes in Public Law 116-59?

In late 2019, Public Law 116-94 was signed, containing a division titled the “Taxpayer Certainty and Disaster Tax Relief Act of 2019.” This law was enacted as part of a larger government funding package. Its primary purpose was to retroactively renew a series of temporary tax provisions that had expired and to provide targeted tax relief to individuals and businesses affected by major federally declared disasters.

Key Tax Extender Provisions

A component of the law involved renewing numerous “tax extenders,” which are temporary tax rules that Congress must periodically vote to prolong. The 2019 act retroactively extended many of these provisions that had expired at the end of 2017, making them available for the 2018, 2019, and 2020 tax years.

Provisions for Individuals

For individuals, the law reinstated several deductions. One was for mortgage insurance premiums, allowing eligible homeowners to treat these payments as deductible mortgage interest. Another renewal was the above-the-line deduction for qualified tuition and related expenses, allowing a deduction of up to $4,000 for higher education costs without needing to itemize.

The act also extended the lower adjusted gross income (AGI) threshold for the medical expense deduction, allowing taxpayers to deduct expenses exceeding 7.5% of their AGI, rather than 10%. The law also renewed the exclusion from gross income for discharge of principal residence indebtedness. This provision permitted taxpayers to exclude up to $2 million of forgiven mortgage debt on their primary home from their taxable income.

Provisions for Businesses

Businesses benefited from the retroactive extension of several tax credits. The Work Opportunity Tax Credit (WOTC), which provides a credit to employers who hire individuals from targeted groups facing barriers to employment, was renewed. The New Markets Tax Credit program, aimed at stimulating investment in low-income communities, received an allocation of $5 billion for 2020.

Another provision extended was the employer credit for paid family and medical leave, allowing employers to claim a credit for a portion of wages paid to employees on leave. The law also renewed incentives for renewable energy. This included the production tax credit for electricity produced from sources like wind, biomass, and hydropower.

Disaster Tax Relief Measures

The act established tax relief for those impacted by major natural disasters declared by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. This relief covered disasters occurring from the beginning of 2018 through early 2020.

One element of this relief modified rules for deducting personal casualty losses. While taxpayers can normally only deduct losses exceeding 10% of their AGI, this limitation was waived for qualified disasters. This allowed affected individuals to deduct a greater portion of their net disaster loss.

The law also provided easier access to retirement funds. It allowed affected individuals to take distributions up to $100,000 from eligible retirement plans, like 401(k)s and IRAs, without the 10% early withdrawal penalty. Income tax on the distribution could be spread over three years, and taxpayers could recontribute the funds within three years to recover the tax paid.

Repeal of Certain Healthcare-Related Taxes

In a shift from the temporary extenders, the law permanently repealed three taxes originally established by the Affordable Care Act (ACA). This move represented a permanent change to the tax code, providing long-term certainty for the affected industries by eliminating these obligations.

One repeal was the high-cost employer-sponsored health coverage tax, often called the “Cadillac Tax.” This 40% excise tax would have been imposed on health plans exceeding certain cost thresholds. The 2019 law removed it completely before it ever took effect.

The act also eliminated the medical device excise tax, a 2.3% tax on the sale of certain medical devices by the manufacturer or importer. This tax had been under a temporary moratorium for several years before the law made its repeal permanent.

Finally, the law repealed the annual fee on health insurance providers, known as the Health Insurance Tax (HIT). This was a fee allocated across health insurance companies based on their market share of net premiums written, the cost of which was often passed on to consumers through higher premiums.