On Friday, December 18, both houses of Congress passed, and the President signed one of the most consequential pieces of tax legislation in some time. The final legislation is H.R. 2029, the “Consolidated Appropriations Act of 2016.”
The bill extends various expired tax provisions, “extenders,” in three ways. There are some provisions which have been extended permanently, a second group that have been extended for five years (2015-2019), and a third basket that have been extended for two years (2015-2016).
The following are some of the highlights of the tax extender sections of H.R. 2029 (Division Q – Protecting Americans from Tax Hikes Act of 2015 – The PATH Act):
- Research & Development Tax Credit (Section 121 of PATH Act)
- Makes the credit permanent.
- For tax years beginning after December 31, 2015, the Act adds provisions of significant value to eligible small businesses.
- Amends IRC 38(c)(4)(B) and adds the R&D credit as a specified credit, thereby allowing eligible small businesses to utilize the credit against AMT. For this section, an eligible small business is one whose average gross receipts for the prior three years do not exceed $50,000,000.
- Provides for eligible startup companies (defined as those with gross receipts of less than $5,000,000, and no gross receipts prior to the 5 taxable years ending in the tax year) to utilize the credit against payroll withholding taxes.
- Utilization against payroll withholding tax is limited to $250,000. Excess credit can be carried forward for utilization against future years’ income tax liability.
- The credit would be utilized in the first calendar quarter following the quarter in which the entity return is filed. Amounts not utilized can be carried forward to the subsequent quarter.
- While earlier, proposed legislation included provisions that would eliminate the Traditional credit method and increase the Alternative Simplified Credit (ASC) percentage from 14% to 20%, the PATH Act does NOT eliminate or modify calculation methods.
- Work Opportunity Tax Credit (Section 142 of PATH Act)
- The credit is extended for five years, including employees hired through December 31, 2019.
- For employees hired after December 31, 2015, the Act adds a new targeted employee group: long-term unemployed individuals.
- New hires will qualify for this category if they are in a period of unemployment lasting at least 27 consecutive weeks, and received unemployment compensation during any part of that unemployment.
- Tax Credit Co. will be implementing new questions into WOTC surveys starting on Jan. 1, 2016 to support this new category.
- Section 179 Property (Section 124 of Path Act)
- Makes the limitations of $500,000 and $2,000,000 permanent.
- Eliminates exclusion of air conditioning and heating units for tax years beginning after December 31, 2015.
The PATH Act also extends the New Markets Tax Credit and bonus depreciation (though with phase-outs) through December 31, 2019, and the Indian Employment and Empowerment Zone credits through December 31, 2016. Several other incentives, including energy credits, are extended through December 31, 2016.
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