Bruce A. McGovern 2017-12-20 05:31:17
The effects of Hurricane Harvey presented significant tax issues for individuals and businesses. In response, the IRS issued administrative guidance and Congress passed the Disaster Tax Relief and Airport and Airway Extension Act of 2017, (“2017 Disaster Relief Act,”)1 which became effective on September 29, 2017. 40 Percent Employee Retention Credit The 2017 Disaster Relief Act provides that employers conducting an active trade or business in the Hurricane Harvey, Irma, or Maria disaster zones are entitled to a tax credit equal to 40 percent of wages paid to employees while the business was inoperable because of the storm. Up to $6,000 of wages are eligible, which means the maximum credit per employee is $2,400. Leave-Based Donation Programs Leave-based donation programs allow employees to forgo vacation, sick, or personal leave in exchange for payments the employer makes to charitable organizations. The IRS provided guidance2 under which neither employees nor employers have adverse tax consequences from cash payments employers make pursuant to such programs before 2019 for relief of those affected by Hurricanes Harvey and Irma. Increased Access to Retirement Funds The 2017 Disaster Relief Act permits certain individuals who suffered economic losses from Hurricanes Harvey, Irma, or Maria to withdraw before 2019 up to $100,000 from an employer-sponsored retirement plan or IRA without the normal 10 percent penalty on early withdrawals. Recipients can report the resulting income ratably over a three-year period and can accomplish a tax-free rollover by contributing the funds to an eligible retirement plan within three years. For those affected by the hurricanes, the legislation increases the limit on loans from qualified employer plans. Eligible individuals can borrow up to the lesser of $100,000 or 100 percent of the person’s vested account balance. Easier Deduction of Casualty Losses The 2017 Disaster Relief Act makes it easier to deduct personal casualty losses attributable to Hurricanes Harvey, Irma, or Maria. Normally, personal casualty losses are deductible only to the extent they exceed $100 and to the extent the sum of all such losses exceeds 10 percent of adjusted gross income. The deduction is available only to those who itemize their deductions. The legislation provides that a “net disaster loss”(as defined) is deductible to the extent it exceeds $500, is deductible without regard to the normal 10 percent threshold, and is deductible by those who take the standard deduction as well as those who itemize. Use of Prior-Year Earned Income to Calculate Tax Credits The 2017 Disaster Relief Act provides that certain individuals who resided in a hurricane disaster area can elect to use prior-year earned income to determine the earned income credit and child tax credit. Increased Limits on Charitable Contribution Deductions Increased limits apply to charitable contributions made through December 31, 2017, for relief efforts in the Hurricane Harvey, Irma, and Maria disaster areas. Provided certain requirements are met, the 2017 Disaster Relief Act increases the limit for individuals to 100 percent of adjusted gross income and for corporations to 100 percent of taxable income. Certain Filing and Payment Deadlines Extended The IRS has extended several filing and payment deadlines to January 31, 2018,3 for individuals and businesses anywhere in Florida, Georgia, Puerto Rico, and the U.S. Virgin Islands, as well as parts of California and Texas. These deadlines include the October 16, 2017, deadline for 2016 returns of individuals who filed timely extension requests and the September 15, 2017, and January 16, 2018, deadlines for quarterly estimated tax payments. Notes 1) Pub. L. No. 115-63. 2) Notice 2017-48, 2017-39 I.R.B. 254 (9/5/17); Notice 2017-52, 2017-40 I.R.B. 262 (9/14/17). 3) News Releases, IRS, IR-2017-160, IRS Offers Help to Hurricane Victims: A Recap of Key Tax Relief Provisions Available Following Harvey, Irma, and Maria (9/26/17); News Releases, IRS, IR-2017-172, IRS Gives Tax Relief to Victims of California Wildfires; Extension Filers Have Until Jan. 31 to File (10/13/17). BRUCE A. McGOVERN is a faculty member of South Texas College of Law Houston, where he also serves as director of the school’s Low-Income Taxpayer Clinic. Previously, he served for many years as the school’s vice president and associate dean of academic administration. He is an ex-officio member of the State Bar of Texas Tax Section, a former chair of the Houston Bar Association Taxation Section, and a fellow of the American College of Tax Counsel.
Published by State Bar of Texas. View All Articles.
This page can be found at http://mydigimag.rrd.com/article/Tax+Law/2967606/463027/article.html.