Tax Increase Prevention Act of 2014

United States Capitol building in Washington, DC
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Both the House of Representatives and the Senate have voted in favor of the Tax Increase Prevention Act of 2014 (HR 5771). The House passed the legislation on December 3, and the Senate voted in favor of the legislation on December 16, 2014. President Obama signed the bill into public law on December 19, 2014.

from Congress.gov: Summary | Full Text | Full Text as PDF

Votes for HR 5771House of RepresentativesSenate
In favor37876
Against4616
Not voting108
Source:Roll Call 544Roll Call 364

The Tax Increase Prevention Act of 2014 restores tax breaks that expired at the end of 2013. Tax breaks that are relevant to 1040 filers are:

HR 5771 also revises the maximum amount that employers can reimburse employees for mass transit and commuter highway vehicle benefits. The benefit amount for 2014 had been set at $130 per month, but HR 5771 revises the benefit amount to be $250 per month.

Among the various business-related tax breaks that were extended, these are the most relevant to small businesses:

These tax breaks are extended for one additional year through the end of 2014. That's right. All the tax incentives listed above will expire on December 31, 2014.

These tax breaks will not be available for tax year 2015. Unless, that is, Congress decides to extend these tax breaks again.

Savings Accounts for the Disabled

HR 5771 includes the Achieving a Better Life Experience Act of 2014 (ABLE Act), which was previously passed by the House of Representatives as HR 647 (summary, full text, House roll call).

The ABLE Act creates a new savings vehicle, called ABLE accounts, for disabled people.  The purpose of ABLE accounts is "to encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities to maintain health, independence, and quality of life," Congress states in Division B of HR 5771 (page 124 of the PDF file).

ABLE Accounts
Contributions
  • Not tax-deductible
  • Limited to $14,000 per beneficiary per year
Distributions
  • Tax-free if spent on qualified disability expenses
  • Taxable (plus a 10 percent surtax) if more than qualified disability expenses
Individuals eligible for an accountBefore reaching 26 years old, the individual became:
  • Blind
  • Impaired, physically or mentally, and the impairment has lasted or is expected to last for at least 12 continuous months or  is expected to result in death
  • Entitled to Social Security benefits due to disability or blindness
Can change designated beneficiaryIf the new beneficiary is also eligible and is related to the former beneficiary
Qualified disability expenses
  • Education
  • Housing
  • Transportation
  • Employment training and support
  • Assistive technology and personal support services
  • Health care
  • Financial management
  • Legal fees
  • Funeral and burial expenses
Disregarded as an assetFor most federal programs with means testing. Except:
  • Distributions for housing count as a resource for  SSI program.
  • Account balances over $100k count as a resource for SSI.

 

The ABLE Act permits states to establish and maintain an ABLE program. Persons could then set up ABLE accounts through the state-run program.  Eligible individuals would be limited to one ABLE account at a time. One or more persons can contribute cash to the ABLE account for a specific beneficiary. Contributions are not tax deductible. The total amount of cash contributions is limited to $14,000 per year per beneficiary. (This contribution limit can potentially vary each year since it is tied to the annual gift tax exclusion amount.)

Distributions from the ABLE account are not taxable to the beneficiary if the funds are spent on "qualified disability expenses." Distributions in excess of qualified disability expenses would be taxable income to the beneficiary and subject to the regular income tax plus a ten percent surtax.

At the beneficiary's death, any remaining funds left in the ABLE account could become a property of the state.

"Moreover," the CBO reports, "assets in an ABLE account and distributions from the account for qualified disability expenses would be disregarded when determining the designated beneficiary’s eligibility for most federal means-tested benefits," (CBO, Letter to Dave Camp, page 2, pdf). However, distributions from an ABLE account for housing expenses will count as a resource for recipients of Supplemental Security Income (SSI) benefits. Any balance over $100,000 in the ABLE account also will count as a resource for SSI recipients.

Tax Breaks that Really Expired

The following tax breaks expired at the end of 2013 and remain expired for 2014.

  • The tax credit for 2- and 3-wheeled plug-in electric vehicles
  • The health coverage tax credit for eligible TAA recipients & eligible PBGC recipients

Penalties are Going Up

To raise revenue, Congress will be increasing various penalties. The following penalties will be indexed for inflation:

  • The penalty for late filing a tax return
  • The penalty for late filing information returns by tax-exempt organizations
  • Penalties imposed on paid tax preparers
  • The penalty for late filing partnership returns
  • The penalty for late filing S corporation returns
  • The penalty for late filing information returns such as 1099 forms
  • The penalty for failing to furnish a correct Schedule K-1

The indexing of the penalties for inflation will take effect for returns required to be filed after December 31, 2014. That means, any tax returns or information returns with a due date in 2015 will have higher than normal penalties compared to previous years.

This is just a quick summary of what's in the Tax Increase Prevention Act of 2014. For more coverage, see: