Bailey Scarano Blog

The SECURE Act Brings Further Tax Changes

On December 20, a substantial piece of legislation, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, was signed into law, making quite a few changes to our ever-changing tax laws. Some items included in the act simply extend or revise provisions from the Tax Cuts and Jobs Act (TCJA) of 2017, while others are completely new. Some of the more noteworthy provisions are mentioned below, but keep in mind there are rules and requirements for each. We can help you determine if you qualify or make adjustments so you do. 

Business Taxes

  • Businesses that start retirement plans that automatically enroll employees now qualify for a new tax credit. 
  • A tax credit for some employers that provide paid family and medical leave was created by the TCJA but only for 2018 and 2019. Now those that qualify can claim the credit through 2020 as long as they continue to meet the requirements. 
  • For small businesses, the SECURE Act expands access to multiple employer retirement plans (MEPs). MEPs allow smaller, unrelated businesses to team up to collectively provide 401ks and other defined contribution plans at a lower cost.
  • Starting in 2021, employers must allow part-time employees who have met certain requirements to participate in company 401k plans. 
  • Rather than expiring in 2019 as planned, The Work Opportunity Tax Credit (WOTC)was extended through 2020. 

Personal taxes

  • You must itemize your deductions to take advantage of this, but homeowners can continue to treat their qualified mortgage insurance premiums as deductible mortgage interest again. This deduction had expired at the end of 2017, but now it is back.
  • The TCJA reduced the threshold for deducting unreimbursed medical expenses from 10% to 7.5% of AGI for 2017 and 2018 and it has now been extended through 2020. Again, you must itemize your personal deductions to take advantage of this tax benefit. 

Dependents

  • You can now withdraw up to $5k from a retirement plan within one year of the birth of a child or finalization of an adoption without the 10% tax penalty. 
  • The deduction for higher education expenses that reduces a taxpayer’s AGI, available regardless of whether the taxpayer itemizes or not, is back again after it expired in 2017. 
  • A lifetime limit of $10,000 can be taken out of a 529 plan to repay student loans without tax or penalty. 529 plans can also now be used to pay for apprenticeships as long as the program is in good standing with the US Department of Labor. Finally, 529 plan funds continue to be able to fund up to $10,000 annually of K-12 grade expenses.
  • If you have dependents with significant investment income, they can continue to be taxed at your tax bracket rather than a trust tax bracket which can reduce their taxes substantially.

Retirement Accounts 

  • Under this new law, the restriction on contributing to an IRA after you reach the age of 70 ½ has been lifted as long as you have earned income. Previously, individuals were not allowed to contribute to traditional IRAs after they reached age 70½, regardless of whether they were still working. 
  • As long as you aren’t 70 ½ by the end of 2019, the age at which you must start taking required minimum distributions increases from 70 ½ to 72. However, the minimum age for making a Qualified Charitable Distribution was notchanged and remains 70 ½. 

Confused Yet? 

Let us know if you have any questions about these new tax law changes. We are happy to help you understand how they apply to you and how you can take advantage of them to lower your tax bill.