CCH Tax Day Report
The Senate Finance Committee has scheduled a markup of the Retirement Enhancement and Savings Bill of 2016 for September 21. The measure would make changes to areas including Code Sec. 401(k) plans, IRAs, small employer tax credits to encourage savings and IRS penalties. The bill is estimated by the JCT to increase federal revenue by $4 million over a 10-year period.
Code Sec. 401(k) Plans
According to the Joint Committee on Taxation (JCT), the proposal would remove the 10-percent limitation on the deemed election rate under the automatic enrollment safe harbor plan after the first year of the applicable election. Additionally, the proposal would eliminate the current safe-harbor notice requirement for the nonelective 401(k) plan.
Small Employer Credits
The measure would change the calculation of the small-employer plan start-up tax credit. Although the credit would remain applicable for a maximum of three years, the flat-dollar amount used would become $500 or an amount that is the lesser of a calculation considering an employee’s pay scale and eligibility for plan participation, or $5,000, according to the JCT.
Further, certain employers would be allowed an additional credit of “$500 per year for up to three years for startup costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment,” the JCT noted. “Eligible employers are also allowed a credit of $500 per year for up to three years if they add automatic enrollment as a feature to an existing plan.”
The measure would also repeal the maximum age for contributions to traditional IRAs. Under the proposal, traditional IRA’s would no longer contain a prohibition against contributions by an individual over the age of 70 1/2. Additionally, taxable payments made for graduate or postdoctoral study would now be considered compensation for purposes of IRA contributions.
Failure to File
Under current law, if a tax return is filed more than 60 days after it is due without a reasonable cause, the taxpayer may be subject to a failure to file penalty. The measure would increase that penalty. “Under the proposal, if a return is filed more than 60 days after its due date, then the failure to file penalty may not be less than the lesser of $400 or 100 percent of the amount required to be shown as tax on the return,” the JCT noted.