Summary Details

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BPAA Federal Policy Update - December 18

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TAX REFORM

Background:
On Friday afternoon, the Conference Committee filed its Conference Report on the “Tax Cuts and Jobs Act.” They had reached an agreement in principle on Wednesday and continued to fine-tune it until Friday to ensure they had the votes necessary for passage.

Senator Bob Corker (R-TN), the lone Republican who voted against the bill when it was considered in the Senate, announced that he will vote in favor of the final Conference Report. Senator Marco Rubio (R-FL) who had withheld his support for the bill this week, also will now vote in favor of the bill following last-minute changes that were made to increase the child care tax credit, a provision of concern to him.

Senate Republicans can only lose two votes before needing Vice President Pence to break the tie. As a result, Vice President Pence has postponed his trip to the Middle East in case he is needed in the Senate. If there are absences in Senate on tax bill, a simple majority still wins. If there are 98 senators voting, they still need 50 yeas. A 49-49 tie would be broken by Vice President Pence.

Timing:
Friday, December 15: The link to the final Conference Report was posted. The bill text is final and cannot be altered since conference reports are unamendable.
Monday, December 18: The House Rules Committee will consider the bill.
Tuesday, December 19: The House will vote first on the bill. Once passed by the House, the Senate bill will begin consideration of the bill.
Wednesday, December 20: The Senate will continue its consideration of the bill, as 10 hours of debate, equally divided, has been scheduled. The Senate would like to complete consideration of the bill on Wednesday.
December 20 – 24: The bill will then be enrolled and sent to the President for signature prior to Christmas. 

One other item of note is that the remaining business tax extenders have not been included in the Conference Report. An extenders bill might be considered next week before adjournment. If not, it will be on the agenda for early next year.

We will be sending you updated information as we further analyze the details of the 1000+ page package.

Link to: Legislative Text
Link to: Explanatory Statement

Highlights of the Conference report agreement include:

BUSINESS

Permanent corporate tax rate at 21%, beginning January 1, 2018.

Corporate AMT repealed.

Wind and electric car credits – current law.

Business income for individuals, under pass-through entities, get a 20% deduction on the first $157,500 for individuals or $315,000 for joint filers, indexed.

Business Interest deduction will look like House EBITDA language and will be in place for 5 years. After 5 years, it will revert to EBIT. This aligns with the 5yr full expensing provision.

Senate corporate state and local tax deduction retained.

Repatriation one-time tax rate set at 15 percent for cash and 8 percent for non-cash assets, which represents an expansion of the provision. Is mandatory, paid over 8 years.

Base Erosion Anti-Abuse Tax provision, or BEAT, imposes a minimum tax on foreign transactions for financial institutions such as JPMorgan Chase, Bank of America, which undercuts the value of solar and wind and other tax credits to them. Compromise measure allows businesses to offset a portion of their BEAT tax with credits.

Eliminated foreign derived intangible income provision, which was beneficial.

Retains the low-income housing tax credit.

Preserves the research and development tax credit.

Retains the tax-preferred status of private-activity bonds that are used to finance infrastructure projects.

INDIVIDUAL

Individual tax rates are set at 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These provisions expire in 2025. 

Increases the standard deduction from $6,350 and $12,700 under current law to $12,000 and $24,000 for individuals and married couples, respectively. 

Preserves the individual Alternative Minimum Tax, but boosts the exemption to $500,000 for single taxpayers and $1 million for couples.

Mortgage Interest Deduction cap is lowered to a $750k (first and second homes). The effective date is for homes purchased on or after January 1, 2018 (not November 2, 2017, which was in the House bill). Existing mortgage debt is grandfathered.

HELOC Loans – interest will be deductible only if the funds are used for home improvement. Debt incurred prior to November 2, 2017 is grandfathered

State income, property, and sales taxes, up to $10,000, can be deducted.

Removes the tax on graduate student tuition waivers. 

Student loans interest deductions are allowed.

Maintains estate tax, but raises threshold to qualify to about $11 million from $5.49 million.

Child-care tax credit is expanded from $1,000 to $2,000 for single filers and married couples. The tax credit is fully refundable up to $1400, and begins to phase-out for families making over $400,000.

Preserves the child and dependent care tax credit and the adoption tax credit.

Eliminates the Obamacare individual mandate penalty tax.

LABOR

Bloomberg news reports, “Tip-Sharing Options Would Expand Under New Federal Proposal” - The Labor Department ban on tip-sharing arrangements where employers pay a direct cash wage of at least the full federal hourly minimum wage and do not claim a tip credit against their minimum-wage obligation would be rescinded under proposed rules, the agency announced Dec. 4. “The proposal would not affect current rules applicable to employers that claim a tip credit under the [Fair Labor Standards Act],” the department’s news release said. It would allow tip sharing “with employees who do not traditionally receive direct tips, such as restaurant cooks and dish washers,” the Labor Department said. The rule to is appear in the Dec. 5, 2017, Federal Register, and a 30-day period for submitting public comment on the Labor Department’s Notice of Proposed Rulemaking (RIN 1235-AA21) ends on Jan. 4, 2018, the Labor Department said on its website. In 2011, the Labor Department issued tip regulations that created tip-credit restrictions, the department news release said. The result has been many lawsuits related to the tip-pooling and tip-retention practices of employers that pay workers at least the full federal hourly minimum wage of $7.25 and do not claim a tip credit, as well as lawsuits challenging the department’s authority to issue such restrictions, the department said. “The department’s proposed new rule follows these developments, along with serious concerns that it incorrectly construed the statute when promulgating the 2011 regulations,” the department news release said. Comments may be submitted at www.regulations.gov or according to guidance provided in the Notice of Proposed Rulemaking that is to appear in the Dec. 5 Federal Register.

Forbes reports on the Top Compliance Issues Facing Small Business Owners In 2018, How can small businesses stay on top of the changes that affect their operations? LaRosa recommends paying close attention to local, state and federal regulatory news and websites, keeping the latest issues and trends in mind. Contacting a local attorney who specializes in employment issues is also a good idea. Here are some of the top compliance issues small business leaders should be watching in 2018: Overtime rule changes, minimum wage increases, expansion of pay equity rules, and paid sick leaves policies.

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