Congress and the President recently agreed on a budget bill that keeps the government operating through the end of September 2016. The $1.1 trillion spending package is over 2000 pages long and includes a number of provisions that were priorities for both sides. Along with increases in domestic and defense spending and eliminating a four decade-long ban on crude oil exports, there were several changes to the tax code.

Here is a summary of some of the major tax changes in the recent budget deal:

Popular “Tax Extenders” Made Permanent

Each year, there are numerous temporary tax breaks (aka tax extenders) that are considered for renewal by Congress. And it has become an annual ritual to temporarily extend these provisions in December right before Congress breaks for their holiday recess. This year, there were upwards of 50 of these provisions that received temporary extensions. In addition, some of the most popular tax extenders were made permanent. These include:

Research and Development (R&D) tax credit for businesses;

• Section 179 small business expensing limit (up to $500,000) for office equipment and heavy machinery;
• All temporary provisions of the Earned Income Tax Credit (EITC) for working families;
• All temporary provisions of the Child Tax Credit (CTC);
• The American Opportunity Tax Credit (AOTC), which provides a credit of up to $2500 per year for qualified education expenses (subject to income limitations);
• Tax-free benefits for employees to help offset the cost of their commutes;
• The option to deduct state and local sales taxes instead of state and local income taxes;
• Tax deduction for elementary and secondary school teacher supplies up to $250;

Because most of the so-called “must pass” tax extenders were made permanent under this deal, it is widely believed that many of the other extenders will be allowed to expire in the coming years without the need to come back each December to address them. In fact, this appears to be the strategy of many who negotiated the package.

Delayed Implementation of Health Insurance Taxes

One other area of the new budget deal worth noting in regards to taxes is the delayed implementation of three taxes that are part of the Affordable Care Act of 2010 (aka Obamacare). They are:

• A one year delay of the tax on health insurance companies;
• A two year delay of the medical device tax;
• A two-year delay of the excise tax for high-value health insurance plans (aka Cadillac tax).

These taxes are unpopular and there has been an effort to eliminate them ever since the bill was passed. However, there is now growing concern about how the Affordable Care Act will be paid for in the absence of these taxes. It also remains to be seen whether these delays become “must pass” tax extenders when they come up for expiration in future years. Much depends on the views of the next President and Congress in regards to the overall health care law.

This is an overview of some of the highlights of the tax changes in the latest budget bill. There are countless other provisions in the bill that impact certain businesses and individuals. Speak to your tax accountant for further details about tax changes that may impact your specific circumstances.