As well as the trade provisions that were the bill’s focus, the Trade Preferences Extension Act of 2015 (H.R. 1295), signed into law in June of 2015, contains provisions regarding tax law. The Act revises several Tax Code provisions, and extends a number of trade agreements as well as programs like trade adjustment assistance (TAA) and the Health Coverage Tax Credit (HCTC). TAA consists of programs that provide federal job training and assistance to workers, firms, farmers and communities that have been adversely impacted by foreign trade.
This act contains provisions that modify the IRC (Internal Revenue Code of 1986) § 35 health coverage tax credit and the IRC § 24 child tax credit. It also requires the filing of the new IRS Form 1098-T by taxpayers to prove eligibility for education credits for qualified education expenses. It makes significant changes to the penalties imposed on employers and educational institutions, waiving penalties in some instances, while increasing information return and payee statement penalties.
Individuals who qualify for TAA are potentially eligible for the Health Coverage Tax Credit. IRC § 35 provides a credit equal to 72.5% of the amount paid by a taxpayer who is an eligible TAA or PBGC (Pension Benefit Guaranty Corporation) pension recipient for qualified health insurance coverage. This applies to the taxpayer and his or her qualifying family members for months in which they are eligible for coverage. The provision expired at the end of 2013, but the act retroactively extends the credit through 2020.
The Act also facilitates the coordination of the § 35 credit with the § 36B premium tax credit by requiring taxpayers to elect to have § 35 apply, and any month that the taxpayer makes such an election, this month is not treated as a coverage month for § 36B purposes. This irrevocable election to have § 35 apply to an eligible month will be effective for that month and for all subsequent months in that particular tax year.
If taxpayers make the § 35 election and also receive advance premium tax credit payments, then their tax liability will be increased by the amount that their § 35 credit exceeds the amount of their § 36B credit. The Act also extends the mechanism for providing advance payments of the § 35 credit. Beginning after 2013, taxpayers presently may make the § 35 election for any year that is still open.
The Act amends IRC § 24 to provide that taxpayers who exclude foreign earned income under § 911 cannot claim the child tax credit. This provision is effective for tax years beginning after Dec. 31, 2014. The child tax credit is limited for taxpayers who elect to exclude from gross income for a tax year any amount of foreign earned income or foreign housing costs. These taxpayers are no longer allowed to claim the refundable portion of the child tax credit for the tax year.
Educational institutions are required to provide Form 1098-T, Tuition Statement, containing the information required in IRC § 6050S(d)(2), to students and file a copy of the form with the IRS. Under the Trade Preferences Extension Act, the American Opportunity Tax Credit and the Lifetime Learning Credit under IRC § 25A, as well as the tuition and fees deduction under IRC § 222, will no longer be permitted without a valid Form 1098-T from the educational institution. These changes are effective for tax years beginning after the Act’s enactment date, which was June 29, 2015.
For employers who file information returns with the IRS, the Trade Act contains provisions that significantly increase penalties under IRC § 6721 for failing to file correct information returns or provide correct payee statements. These penalty increases are significant as they range from 75% to 150%. These increased penalties will apply to information returns that most large employers will file for the first time in 2016 under the Affordable Care Act, such as 1094-C and 1095-C; and forms that smaller employers will file for the first time like Forms 1094-B and 1095-B.
If you have questions about the health coverage tax credit, the child tax credit, education tax credits, or any other tax-related provisions of the Trade Preferences Extension Act of 2015, or any other federal tax law, rule, or regulation, call THE TAX EXPERTS AT THE Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
