President signs legislation providing additional hurricane relief
Includes employment credit, enhanced charitable contribution provision
TAX ALERT |
President Trump signed H.R. 3823 on Sept. 29, which includes tax relief for those impacted by Hurricanes Harvey, Irma and Maria. The legislation includes four provisions that are of particular interest:
1. Employee retention credit: Employers with a trade or business that was rendered inoperable by one of the storms can claim a tax credit equal to 40% of the wages paid to an employee (up to $6,000 of wages) whose principal place of employment was in a disaster area. The credit applies to wages paid during the period the business remains inoperable, ending no later than Jan. 1, 2018, and would apply regardless of whether the employee provides any services, provides services at an alternate location or provides services at the principal place of employment before substantial business operations are resumed.
2. Suspension of certain percentage limitations on charitable contributions: Corporate and individual taxpayers are ordinarily subject to certain limitations, usually computed as a percentage of their income, on their ability to deduct charitable contributions. The legislation eliminates those limitations for contributions to be used in relief efforts in areas impacted by the hurricanes. In order to qualify, the taxpayer must receive a contemporaneous written acknowledgement from the charity that the contribution is to be used in those efforts.
3. Exception to the 10% penalty on early withdrawal from qualified retirement plans: Taxpayers who take early withdrawals from a retirement plan before the year in which they turn 59½ ordinarily must pay income tax on that withdrawal, in addition to a 10% penalty. H.R. 3823 waives the 10% penalty on distributions of up to $100,000 for individuals residing in an affected area who have suffered a loss. Taxpayers who take such withdrawals also have the opportunity to spread the income recognition over three years, and to potentially repay the amount within that same period and avoid tax on the distribution.
4. Enhanced casualty deductions: Individuals who suffer a casualty loss in a disaster typically are only entitled to a tax deduction to the extent that: a) they itemize their deductions and b) the casualty loss exceeds 10% of the their adjusted gross income. The legislation eliminates both of those limitations for losses in one of the designated disaster areas.