On September 29, President Trump signed the Disaster Tax Relief and Airport and Airway Extension Act of 2017 into law. The law provides tax relief to victims of Hurricanes Harvey, Irma and Maria.
The relief provisions are specifically targeted to victims of these three storms and in most cases have a limited effective period. The provisions cover five specific areas:
Special Employee Retention Credit
The Act allows a 40% credit for a portion of wages paid to employees who work in one of the federally declared disaster zones for an employer whose business was inoperative due to the storm for at least one day. The credit, limited to $6,000 of qualified wages per each eligible employee, ends on the earlier of the day the employer resumes significant operations subsequent to becoming inoperable because of the respective hurricane, or December 31, 2017.
The credit is on wages paid to employees regardless of whether they worked or not. An employee cannot be considered twice (i.e. more than one hurricane is applicable) for purposes of the credit.
Charitable Contribution Limitations Eased
Current law provides limitations on the amount of charitable contributions that are deductible by both individuals and corporations. For any contribution that is used for relief efforts related to one of the storms, the majority of these limitations are suspended. Eased rules are also provided for excess contributions. In addition, the itemized deduction phase out for high income taxpayers is waived for these contributions.
In order to qualify, a contribution must be made between August 23 to December 31, 2017 and a taxpayer must elect the special treatment.
Casualty Loss Rules Eased
Under current law, a personal casualty loss is deducted as an itemized deduction only to the extent the loss exceeds 10% of the taxpayer’s adjusted gross income. For taxpayers suffering a disaster loss, the 10% threshold is eliminated. In addition, taxpayers normally claiming a standard deduction in lieu of itemized deductions can increase their standard deduction by the amount of the disaster loss. Such increase is deductible for Alternative Minimum Tax purposes, as well. In addition, the $100 per-casualty floor is increased to $ 500.
IRA and Retirement Plan Changes
If a taxpayer whose primary residence is in one of the disaster zones and they suffered an economic loss as the result of a storm, they can borrow up to $100,000 (up from $50,000) from their qualified plan. In addition, any required repayment will be delayed for one year thereby allowing six years for tax free repayment instead of the current five years.
If a taxpayer choses to take a distribution related to the storm, any penalty for early withdrawals is waived. In addition, such taxpayers will have three years from the date of a qualifying distribution to recontribute the funds which will be considered as rollover contributions. In the alternative, any fully taxable amounts will be taxable over a three year period of time.
EARNED INCOME TAX CREDIT
The new law allows a qualified individual to substitute the earned income, if greater, of the preceding year for the 2017 tax year in terms of calculating the credit.
If you are impacted by any of these storms, reach out to your Citrin Cooperman advisor for assistance in this difficult time.