The PATH Act was enacted at the end of 2015, finally extending almost all of the expired provisions for 2015, and even making a number of them permanent. There were a lot of modifications to those provisions, but most of those modifications were not effective until 2016. So, 2015 taxes should look a lot like 2014 taxes, right? That is basically right, but there are still a number of differences that could have an impact on 2015 tax returns.
- The Affordable Care Act. The Affordable Care Act has been providing tax law changes almost every year since it was enacted in 2010, and 2015 is no different. The ACA brings the new shared responsibility payment for applicable large employers that do not offer minimum essential coverage. It also brings complicated reporting by applicable large employers and health insurers. These reporting requirements on Forms 1095-B and 1095-C will probably be the most significant change facing business tax return filers for 2015. The Internal Revenue Service has already responded to compliance concerns by extending the deadline for filing these forms for 2015.
For individual taxpayers, the receipt of these Forms 1095-B and 1096-C will help buttress the claim that they are not subject to an individual shared responsibility payment but will not otherwise be a significant source of difficulty for 2015 tax return preparation. It will be more important for individuals to be able to avoid the individual shared responsibility payment for 2015, since it increased significantly from 2014 to 2015, from the greater of 1 percent of household income to 2 percent of household income or $95 per person (maximum $285) to $325 per person (maximum $975).
- EIC, CTC and AOTC. In exchange for making the Earned Income Credit, the Child Tax Credit, and the American Opportunity Tax Credit permanent, Congress extracted a number of provisions to try to reduce fraud, some of which will have an impact on 2015 tax returns. A taxpayer cannot claim the credits for 2015 unless they had a taxpayer identification number prior to the due date for the return (including extensions). There is an exception for 2015 if the tax return is filed prior to the due date. The credits also cannot be claimed with respect to a particular child or student unless that child or student also had a taxpayer identification number prior to the due date for the return. A taxpayer also cannot claim the additional Child Tax Credit if the taxpayer also claimed the foreign earned income or foreign housing exclusion.
- 529 plans. The PATH Act made several modifications with respect to 529 plans that relate back to the beginning of 2015. If a 529 plan made a distribution for computer technology equipment in 2015, that distribution will now be viewed as a qualifying expense and not a taxable distribution.
- Two-wheeled plug-in vehicles. The 10 percent credit for two-wheeled plug-in vehicles was extended for 2015 and 2016 but it was left expired for 2014. This is therefore a credit that may be available to taxpayers in 2015 that was not available in 2014.
- Health Coverage Tax Credit. The Trade Preference Extension Act of 2015 retroactively extended the Health Coverage Tax Credit back through 2014 and ahead through 2019. This is therefore a credit available on the 2015 tax return that was not available when the 2014 tax returns were filed. This credit, however, may also be claimed for 2014 by filing an amended tax return. The extension of the HCTC also included provisions to permit it to work with the premium assistance credit under the ACA. Taxpayers may elect into the HCTC and out of the premium tax credit on an amended return during a three-year period starting on June 29, 2015.
- Tax return preparer penalties. The PATH Act increased the penalties on a paid tax preparer for willful or reckless conduct for tax returns prepared for tax years ending after Dec 18, 2015. These enhanced penalties will therefore apply for 2015 calendar year tax returns.
- Information return penalties. Penalties were increased for failure to file correct information returns effective for returns and statements filed after Dec. 31, 2015. This change would therefore apply to information returns filed in 2016 for the 2015 tax year. A new safe harbor for de minimis errors on information returns and statements was also enacted, but the safe harbor is not effective until returns or statements required to be filed or provided after Dec. 31, 2016.
- REITs and RICs. The PATH Act included a whole set of provisions with respect to real estate investment trusts and also several provisions with respect to mutual funds, or RICs. The new REIT spin-off rules apply to distributions on or after Dec. 7, 2015, unless there is a pending ruling request on that date. Another provision related to U.S. real property interests and REITs and RICs under the Foreign Investment in Real Property Tax Act is generally effective on or after Dec. 18, 2015.
- Agricultural research organizations. Should any of your clients have acted quickly after the PATH Act was enacted and made a charitable contribution to an agricultural research organization before year’s end, the contribution qualifies for a charitable deduction for gifts made on or after Dec. 18, 2015. The organization in question must be directly engaged in continuous agricultural research in conjunction with a land-grant college or university or a non-land-grant college of agriculture, and the organization must commit to spend the contribution on such research within five years.
- Rollovers to SIMPLE plans. Should any of your clients have made rollovers from employer retirement plans to a SIMPLE IRA rather than a rollover IRA in 2015, such a rollover is now a permitted rollover not subject to tax if the contribution was made after Dec. 18, 2015.
- Transit parity. The PATH Act increased the reimbursement available to employees for transit pass and vanpool expenses from $130 per month to $250 per month retroactively through 2015. While this does not have a direct impact on 2015 tax returns, employees of employers who provide reimbursements for transit expenses may be entitled to additional reimbursements for 2015 if their employers choose to provide it. Notice 2016-6 provides additional guidance to employers on handling these reimbursements.
- Election to claim accelerated Alternative Minimum Tax credit in lieu of bonus depreciation. The PATH Act provides an election to forgo bonus depreciation on round 5 extension property if no similar election had been made for round 4 extension property, or to make an election to claim bonus depreciation on round 5 extension property if bonus depreciation had been foregone for round 4 extension property.
- Military personnel. A couple of new provisions could have an impact on military personnel or veterans and their employers for 2015. For purposes of determining whether an employer is an applicable large employer and has at least 50 full-time employees, an individual is not taken into account for a month if the individual already has medical coverage for the month under the TriCare program or a Veterans Administration health care program.
Another provision that could have an impact in 2015 although it would not affect 2015 tax returns is a new provision preventing the collection period for a taxpayer from being suspended by reason of any period of continuous hospitalization for combat zone injuries or the 180 days thereafter.
- Identity theft. Some additional identity theft measures being taken by the IRS and private tax preparation services could see some taxpayers receive additional identification numbers on their W-2s for 2015. Additional tax return review procedures could also result in some delayed refunds.
- Due dates. Due to holidays, the due dates for 2015 tax returns have received a modest extension. April 18, 2016, is the due date for most of the country, with April 19, 2016, being the due date in Maine and Massachusetts. The extended due date, due to a weekend, is Oct. 17, 2016.