While tax reform brought extensive changes, there are a host of proposed changes that were left on the cutting room floor. Here are just some of the proposed tax law changes that did not make it to the final bill:
Reducing the cap pretax 401(k) and 403(b) contributions. While this concept did not make it into either the Senate or House bill, there was serious consideration of placing the annual limit for these pretax contributions as low as $2,400. Some tax reformers had even advocated eliminating pretax retirement plan contributions.
Repeal of the exclusion for qualified tuition reduction plans. Under current law, employees of certain educational institutions may exclude qualified tuition reduction from taxable income. This includes employer-provided tuition reductions for the employee and their dependents. These tuition reductions may be in the form of tuition remission, tuition waiver, or a tuition grant.
Under the House bill these qualified tuition reduction benefits would have become taxable. This would have negatively impacted Christian K-12 schools and colleges and universities. Thankfully, this provision was not enacted.
Modification of the Johnson Amendment. A House provision would have modified—but not repealed—the law enacted in 1954, which regulates the speech of religious organizations and other organizations. Quoting Mike Batts, chairman of the Commission on Accountability and Policy for Religious Organizations, “it is the only law of its type on the books . . . the only law that allows the IRS to evaluate the content of a sermon delivered by a member of the clergy . . . the only law that could cause a church to lose its federal tax exemption based on the words spoken by its leaders in a worship service.”
The House proposal was consistent with the recommendations of the Commission in their 2013 report. The Commission was formed by ECFA at the request of Senator Charles Grassley.
The inclusion of this provision in the final bill was blocked by the Senate parliamentarian. Because of a requirement called the Byrd Rule (named after the long-tenured Senator from West Virginia, Robert Byrd), reconciliation bills—which are passed through a simple Senate majority—cannot contain extraneous provisions that don’t primarily deal with fiscal policy.
Adjustment to the charitable mileage rate. Oddly, while the IRS can adjust the business, medical, and moving mileages rates as they wish, only Congress can change the charitable mileage rate. That rate has been stuck at 14 cents per mile since 2002.
The House version of tax reform would have adjusted the charitable mileage rate for inflation but this provision was not in the final legislation.
Repeal of the exclusion for employer-provided educational assistance programs. Under current law, employees may exclude from income up to $5,250 per year in educational assistance at the undergraduate and graduate level regardless of whether the education is related to his or her job. Under the House bill, the payments would have become taxable. This provision was not enacted.
Under the current tax code, a person must have a Social Security number in order to be a 529 beneficiary, and babies are not assigned a number until after they are born.
The unborn child language did not make it to the final bill.
Elimination of the exclusion for employer-provided dependent care assistance programs. Under current law, an employer can develop a dependent care assistance program under which employees can exclude employer payments from income, subject to certain limitations, if the expenses would be employment-related for child care credit purposes if they were paid to the employee.
So, you can readily see that there were many possible changes to the tax law that did not make it to the finish line in The Tax Cuts and Job Act of 2017.
For more information on Tax Reform and its implications for churches and nonprofits, please consider attending one of the free, in-person National Forums on Tax Reform and/or watching our free Tax Reform Webinar-on-Demand.