Tom Talks Taxes - December 26, 2022
Recent IRS announcements plus the SECURE 2.0 Act of 2022
The last week brought dozens of tax law changes thanks to recent IRS guidance and the passage of the SECURE 2.0 Act of 2022. Part 1 of this series will discuss tax law changes affecting tax year 2023 and prior, while Part 2 will discuss changes impacting tax years 2024 and forward.
Form 1099-K Reporting Postponement. In Notice 2023-10, the IRS delayed enforcement of the reporting threshold reduction for Form 1099-K from $20,000 in gross sales and 200 transactions to $600 in gross sales. The lower threshold will apply to transactions during calendar year 2023 but not calendar year 2022, which will now be a “transition period.” Despite the IRS delay, some Form 1099-K issuers will likely issue forms based on the lower threshold.
Cryptocurrency Reporting. In Announcement 2023-02, the IRS stated that there will be no new cryptocurrency reporting requirements until the IRS issues final regulations under §6045 and §6045A due to changes made by Sec. 80603 of the Infrastructure Investment and Jobs Act. Until then, a broker may report gross proceeds and basis as required under existing law and regulations as of December 23, 2022.
The following selected changes were in the SECURE 2.0 Act of 2022, which was signed into law by President Biden on December 23, 2022:
Required Minimum Distribution (RMD) Age. Starting on January 1, 2023, an individual must begin RMDs in the year they attain age 73. This increases to age 75 beginning January 1, 2033. This provision applies to taxpayers who attain age 72 after December 31, 2022.
Increase in §45E Credit. This existing credit is for retirement plan start-up expenses. The credit rate increases to 100% for employers with up to 50 employees, and the law provides additional tax credits for employer contributions of up to $1,000 per employee for employers with up to 100 employees. This change applies to tax years beginning after December 31, 2022.
New §45AA Credit. This new tax credit incentivizes small employers to give military spouses retirement plan access. This provision applies to tax years beginning after the enactment date.
Domestic Employee Retirement Plans. Employers of domestic employees can provide retirement benefits under a SEP. This provision applies to tax years beginning after the enactment date.
Excise Tax on Missed RMDs. The §4974 excise tax on missed RMD amounts is reduced from 50% to 25%. In addition, the tax is further reduced to 10% for taxpayers who take any missed RMDs within a specified correction window. This provision applies to tax years beginning after the enactment date.
Terminal Illness Distributions. There is a new 10% additional tax exception for early retirement withdrawals for taxpayers with terminal illnesses. Distributions may be repaid within three years of the day after receipt of the distribution. This provision applies to distributions made after the enactment date.
Qualified Charitable Distributions. Starting in tax year 2024, the $100,000 annual limit will be indexed to inflation. In addition, a one-time election will be available in a tax year to distribute up to $50,000 to charities through charitable gift annuities, charitable remainder unitrusts, or charitable remainder annuity trusts. These provisions apply to distributions made in tax years beginning after the enactment date.
Qualified Birth and Adoption Distributions. The law clarified that qualified birth and adoption distributions, first created by the original SECURE Act, can be repaid within three years from the day after receipt of the distribution. The original statute had no time limit. This provision applies to distributions made after the enactment date; however, distributions made on or before the enactment date can be repaid before January 1, 2026.
Qualified Public Safety Officer Distributions. There is an existing 10% additional tax exception for early retirement withdrawals if a qualified public safety officer terminates employment after attaining the age of 50. Service as a private-sector firefighter, corrections officer, and forensic security employee now qualifies for this exception. In addition, a distribution now qualifies if it is made after attaining the earlier of age 50 or 25 years of service. These changes apply to distributions made after the enactment date.
Retroactive Employee Contributions for Sole Proprietors. An individual who owns an unincorporated business (including a single-member LLC) 401(k) plan and is the sole participant in the plan can now make employee contributions up to the tax return filing date for the plan’s initial year if an election is made to treat it as established on the last day of the tax year. This provision applies to plan years beginning after the enactment date.
Health Insurance Exclusion for Public Safety Officers. Current law provides a $3,000 exclusion for a distribution from a governmental retirement plan to a public safety officer to pay for health insurance premiums. The requirement that the plan directly pays for the insurance premiums is now repealed. This provision applies to distributions made after the enactment date.
SIMPLE and SEP Roth Contributions. SIMPLE plans can accept Roth contributions, and SEP employer contributions can be Roth contributions included in the employee’s gross income. This provision applies to tax years beginning after December 31, 2022.
Roth Employer Contributions. Defined contribution plans can allow participants to receive employer contributions as Roth contributions. The participant includes the employer contribution in gross income. This provision applies to contributions made after the enactment date.
Want More on the SECURE 2.0 Act of 2022?
Join me on Thursday, December 29, 2022 at 2:00 PM ET / 11:00 AM PT for a two (2) CE/CPE webinar through Compass Tax Educators. Register today!