The Small Business Jobs Act of 2010 (H.R. 5297) (the “Act”), signed into law by President Obama on September 27, 2010 (the “Enactment Date”), contains the following provisions which affect employee benefits.
The Act allows a self-employed individual to take into account the individual’s entire tax deduction for health insurance premiums when computing the individual’s self-employment tax for his or her tax year starting in 2010.
The Act eliminates cell phones (and other similar telecommunications equipment) from the definition of “listed property” in Section 280F(d)(4)(A) of the Internal Revenue Code (the “Code”). This means that employer-provided cell phones (and similar communications equipment) will not have to satisfy heightened substantiation requirements and certain depreciation limitations in order for employees to avoid taxation when using these devices for business reasons, and for employers to be able to deduct the cost of acquiring and using these devises. This provision of the Act applies in tax years starting after 2009. According to the legislative history, the provision does not affect the IRS’s authority to treat the value of an employer- provided cell phone (or similar device) as being a tax-free working condition fringe benefit under section 132(d) of the Code, or a tax-free de minimis fringe benefit under section 132(e) of the Code.
The Act allows, for tax years starting after 2010, participants in government section 457(b) plans to treat elective deferrals made under such plans as being Roth contributions.
The Act allows, any time after the Enactment Date, a participant in a 401(k) plan, 403(b) plan or government 457(b) plan, to which Roth contributions may be made, to convert amounts held under that plan, including but not limited to pre-tax elective deferrals, to Roth contributions. Any amount being so converted (other than after-tax contributions) must be included in gross income, but is not subject to the 10% penalty under Code section 72(t). As a transition rule, unless the participant elects otherwise, the taxable portion of any amount converted in 2010 will be included in gross income ratably over 2011 and 2012. The legislative history indicates that the plan must otherwise accept Roth contributions (i.e., it must allow the designation of elective deferrals as Roth contributions) for the conversion to be allowable. A plan, which does not allow Roth contributions, cannot establish a “Roth account” to accomplish the conversion. Also, the amount to be converted must otherwise be distributable under the terms of the plan (e.g., as an in-service distribution). A plan may be amended to permit distributions (otherwise allowed by the Code), so that a conversion may be made. A plan is not required to permit the conversions. If the plan does permit conversions, it must be amended to reflect this feature. It is expected that the IRS will provide employers with a remedial amendment period so that they may offer the conversion feature during 2010, and then have sufficient time to amend the plan to reflect this feature.