Lawmakers Eye Tax Benefits For Seniors For COVID-19 Bill

The two congressional tax-writing committees are examining new proposals to expand tax incentives and other benefits for seniors in possible legislation being developed to address the economic effects of the COVID-19 pandemic.

Proponents are pushing for measures that will last longer than several temporary incentives for seniors that were included in the recently enacted $2 trillion rescue law, pointing to potential lasting health effects of COVID-19 for vulnerable older Americans and reduced savings caused by declines in financial markets.

A fourth relief package headed toward possible House and Senate floor action this week focuses on funding for hospitals, virus testing and small-business loans, and currently does not include new tax incentives for seniors or tweaks to Social Security benefits. But both parties are exploring such measures as potential components for other relief measures to follow in the wake of the Coronavirus Aid, Relief, and Economic Security Act signed by President Donald Trump in March.

"There's a lot we want to do," said Sen. Benjamin Cardin, D-Md., a senior member of the Finance Committee. "The market is down. We want to let people keep more money in retirement savings."

Cardin predicted a push to expand a temporary provision in the CARES Act that suspends for this year the requirement for people to take minimum distributions from qualified retirement accounts starting at age 72.

Lawmakers also are examining plans to provide more flexibility for withdrawing or borrowing cash from qualified retirement accounts. The rescue law allowed early withdrawals in 2020 from such accounts before age 59½ of up to $100,000 without the usual 10% penalty under Internal Revenue Code Section 72(t) . And it allowed such withdrawals to be treated as loans, with a three-year window to either return the money to the accounts or pay taxes on it.

Rep. George Holding, R-N.C., a senior House Ways and Means Committee member, said he and other Republicans were looking for ways to give seniors more leeway to cover their costs related to COVID-19 and make up for investment losses in their retirement savings accounts.

"I'm open to that," Holding told Law360. "We do need to allow time for the markets to recover. We need the economy to get over the shock and come back to where it needs to be."

Other ideas on the table include proposals to ease restrictions on the outside earnings of Social Security recipients, potentially making it more enticing for retirees to go back to work. Supporters say that such incentives could encourage seniors to help efforts to cope with effects of the virus by taking jobs in critical sectors of the economy such as health care, agriculture, food processing, law enforcement and transportation.

For example, Rep. Jackie Walorski, R-Ind., has pushed a proposal, H.R. 6554, to eliminate for this year a retirement earnings test, requiring mandatory reductions in Social Security benefits of those that have not reached their normal retirement age — between 65 and 67 depending on the year of birth — by about $1 for every $2 in outside income exceeding certain caps. The income caps are $48,600 for individuals who will reach their normal retirement age by 2020 and $18,240 for younger beneficiaries.

"Older Americans who keep working or return to work after taking Social Security shouldn't have their benefits reduced or delayed — especially during this national crisis," Walorski said in a written statement.

She said her proposal would help "those returning to work out of financial necessity or to help fight coronavirus."

Senate Finance Committee Chairman Charles Grassley, R-Iowa, helped work out an agreement on several incentives for seniors in the CARES Act and has made clear he remains open to additional incentives. However, Michael Zona, a Grassley spokesman, told Law360 in an email that the chairman was focused, for now, mainly on temporary measures for this year.

"The CARES Act is still being implemented. It's too early to speak to potential relief for 2021," Zona said.

Ways and Means Committee Chairman Richard NeaI, D-Mass., has looked to develop a more ambitious package that would build on a $14.5 billion batch of retirement savings incentives, the Setting Every Community Up for Retirement Enhancement Act, that was included in the fiscal 2020 omnibus spending law  enacted in December. The law reshaped traditional individual retirement accounts by ending an age limit for contributions and delayed by 18 months, to age 72, the start of required minimum distributions.

As part of their agenda for seniors, Neal and other senior Democrats have tried to shoehorn into virus relief talks a contentious $48.5 billion House-passed plan, H.R. 397, known as the Butch Lewis Act, for providing loans to troubled multiemployer pension funds. But Grassley has argued instead for his shared blueprint with Sen. Lamar Alexander, R-Tenn., chairman of the Health, Education, Labor and Pensions Committee, which provides for increased flat-rate premiums to the Pension Benefit Guaranty Corp. and a retiree copayment.

In addition to aid for multiemployer pension plans, Sens. Ron Wyden, D-Ore., and Elizabeth Warren, D-Mass., and Rep. John Larson, D-Conn., have pushed for proposals to temporarily increase Social Security benefits to help seniors deal with challenges related to COVID-19.

But Republicans have pushed back against temporary increases in benefits, citing concern they could open the door to proposals in the future to make them permanent and increase the 6.2% Social Security tax paid both by employers and by workers to the Internal Revenue Service.

For now, Larson has pivoted away from another proposal, H.R. 860, that would permanently increase Social Security benefits and lift the payroll tax to 7.4% by 2043, which has 208 Democratic co-sponsors but faces strong Senate GOP opposition.

Despite a stalemate on that initiative, Larson said he believed he could build bipartisan consensus for a new proposal, H.R. 6356, that would provide a 2% emergency upgrade in Social Security benefits without any increase in payroll taxes. His proposal would also lift the threshold for taxation of Social Security benefits to $35,000 for individual beneficiaries, up from $25,000, and to $50,000 for couples, up from $32,000.

"We need to take those benefit levels and raise them up," Larson told Law360. "We are still pushing on a range of issues on Social Security as it relates to disabilities, spouses, dependents and pensions."

--Editing by Robert Rudinger and John Oudens.

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