The Washington Report
January 8, 2020
The House and Senate return to the Hill this week after holiday recess.
IRS Releases 2020 Covered Compensation Tables
On January 3, 2020, the Internal Revenue Service (IRS) released Revenue Ruling 2020-02, which provides the compensation tables for calculating certain benefits under qualified pension, profit-sharing, and stock bonus plans for plan year 2020. For purposes of determining covered compensation for 2020, the taxable wage base is $137,700.
IRS Revenue Ruling 2020-02 is available here.
IRS Publishes Standard Mileage Rates
On December 31, 2019, the Internal Revenue Service (IRS) published Notice 2020-05, which provides the 2020 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes. Beginning on January 1, 2020, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:
- 57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019;
- 17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019; and
- 14 cents per mile driven in service of charitable organizations.
The business mileage rate decreased one half of a cent for business travel driven and three cents for medical and certain moving expense from the rates for 2019. The charitable rate is set by statute and remains unchanged.
IRS Notice 2020-05 is available here.
The news release is available here.
IRS Releases Proposed Regulations Limiting Tax Benefits on Executive Compensation
On December 16, 2019, the IRS released proposed regulations to reflect changes from the Tax Cuts and Jobs Act (TCJA) on the tax deductibility of officers' compensation by publicly held corporations. On August 21, 2018, the IRS released Notice 2018-68. This Notice provided initial guidance on this deduction limitation. Section 162(m) disallows the deduction by any publicly held corporation for compensation paid in any taxable year to a covered employee that exceeds $1 million. The proposed regulations update the definitions of covered employee, publicly held corporation, and applicable employee compensation.
The TCJA also provided a transition, or "grandfather" rule, for certain outstanding compensatory arrangements. Specifically, the TCJA changes do not apply to compensation that is provided to a covered employee under a written binding contract that was in effect on November 2, 2017, and was not modified on or after that date. The proposed regulations further explain the grandfather rule, including when a contract will be considered materially modified so that it is no longer considered "grandfathered." The TCJA changes apply to tax years beginning after December 31, 2017, except to the extent the grandfather rule applies. The IRS stated that taxpayers may rely on these proposed regulations for tax years before the final regulations are effective.
Comments on the proposed regulations are due by February 18, 2020. Outlines of topics to be discussed at the public hearing scheduled for March 9, 2020, at 10 a.m. must also be received by February 18, 2020.
The proposed regulations are available here.
The IRS news release is available here.
IRS Notice 2018-68 is available here.
Fifth Circuit Rules ACA Mandate Unconstitutional but Punts on Severability Issue
On December 18, 2019, in a divided ruling, the U.S. Fifth Circuit Court of Appeals held that the Affordable Care Act’s (ACA’s) mandate that an individual purchase health insurance or pay a penalty was unconstitutional. The court of appeals remanded the rest of the case back to the federal district court with instructions to specify what parts, if any, of the ACA could be severed from the mandate and upheld on their own.
The Aon bulletin on the Fifth Circuit Court opinion is available here.
2020 Limits for Benefit Plans
Each year, the U.S. government adjusts the limits for retirement plans, Social Security, Medicare, and other benefit programs to reflect price and wage inflation, and changes in the law. As a result, employee benefit plans must be adapted annually to accommodate the new limits. All of the numbers in this report are official unless otherwise indicated.
The 2020 Limits for Benefit Plans bulletin is available here.
Federal Budget Deal Is Nice (Mostly) to Employer Group Health Care Plans
Spending deal repeals three ACA taxes, revives Patient-Centered Outcomes Research Institute (PCORI) fee; paid leave for federal employees foreshadows 2020 policy fights.
The federal budget deal passed by Congress and signed into law by President Trump on December 20, 2019, repealed three health care taxes that funded the ACA, while reviving and extending until 2029 the fee funding the PCORI. The budget measure, which averted a government shutdown, also contained several provisions intended to encourage and subsidize paid family leave programs.
The Aon bulletin on the federal budget deal is available here.
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