The House Ways & Means Committee has voted to extend a vast array of individual and corporate tax provisions, including special disaster-related rules for use of retirement funds.
Disaster Relief Assistance
The Committee late June 20 approved the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (H.R. 3301) providing temporary tax relief to those areas affected by certain major disasters declared in 2018 and some portion of 2019.
This includes relief from the 10% early withdrawal penalty for qualified disaster relief distributions up to $100,000 from a qualified retirement plan, a section 403(b) plan or an IRA. In addition, income attributable to a qualified disaster distribution may be included in income ratably over three years, and the amount of a qualified disaster distribution may be recontributed to an eligible retirement plan within three years.
A “qualified disaster distribution” is any distribution from a qualified retirement plan, section 403(b) or section 457(b) plan, made on or after the first day of the incident period (beginning after 2017) of a qualified disaster and before 180 days after the date of enactment, to an individual whose principal place of residence during the incident period is located in the disaster area and who has sustained an economic loss by reason of such disaster.
Additionally, a plan would not be treated as violating any Code requirement merely because it treats a distribution as a qualified disaster distribution, provided that the aggregate amount of such distributions from plans maintained by the employer and members of the employer’s controlled group or affiliated service group does not exceed $100,000 for each qualified disaster.
The legislation also allows for the re-contribution of retirement plan withdrawals for home purchases cancelled due to eligible disasters and provides flexibility for loans from retirement plans for qualified hurricane relief.
H.R. 3301 further includes tax provisions relating to employment-retention tax credits for employers affected by qualified disasters, temporary suspension of limitations for charitable contributions and special rules for qualified disaster-related personal casualty losses.
Beyond the disaster relief provisions, the legislative package only tangentially touches on retirement plan issues. Among other things, the legislation would:
- restore through 2020 various expired (or expiring) tax breaks for individuals and businesses;
- expand the Earned Income Tax Credit and Child Tax Credit;
- extend the employer tax credit for paid family and medical leave;
- extend the Work Opportunity Tax Credit;
- increase the exclusion for employer-provided dependent care assistance; and
- provide for an earlier termination of estate and gift tax relief enacted as part of the Tax Cuts and Jobs Act (TCJA).
The proposal would also repeal the modified rules enacted under the 2017 tax reform law related to the exclusion for certain fringe benefit expenses, such as those associated with church parking.
The estimated cost of this legislative package is $106 billion in lost revenue over 10 years but House Ways & Means Committee Chairman Richard Neal (D-MA) has indicated that the legislation will include so-called “pay-fors” by the time it reaches the House floor.
These pay-fors will likely target some of the provisions contained in the TCJA. While Republicans in both the House and Senate support many of the provisions contained in this package, it’s unlikely they will support efforts to roll back provisions from the TCJA.
The statutory text and summaries of the disaster relief legislation, as well as the Economic Mobility Act, are contained below.