In the News

The beer industry, struggling restaurants and federal workers forced into President Trump’s payroll-tax deferral all stand to gain from the year-end congressional agreement reached Sunday.

The deal includes tax breaks aimed at supporting the economy during the coronavirus pandemic as well as extensions of popular provisions that were set to expire at the end of the year. Lawmakers still must vote, but the contours of the tax provisions took shape over the weekend along with the broader coronavirus relief package.

“There are a number of additional tax measures in the packages that will go a long way in supporting folks facing hardships while also helping get our economy back on track,” said Rep. Richard Neal (D., Mass.), chairman of the House Ways and Means Committee.

The tax provisions total $328 billion over a decade, according to the Joint Committee on Taxation. About half of that is the one-time stimulus checks.

Beer, wine and spirits makers had been bracing for excise tax increases Jan. 1. Instead, the lower tax rates they have had since 2018 will be extended indefinitely, as will a tax credit for maintaining short-line railroads.

Mr. Trump will get the business-meals break he has desired for 2021 and 2022, allowing full write-offs inside of the current 50% limit. Some lawmakers and economists have questioned the merits of what they deride as a “three-martini-lunch” deduction that encourages indoor dining during a pandemic. But Mr. Trump, swayed by restaurateurs such as Wolfgang Puck, says it is important for the restaurant industry.

The deductions will lead to more spending in restaurants, said Sen. Tim Scott (R., S.C.), who championed the provision and had earlier authored a separate bill on it.

“Common-sense solutions like my bill are no-brainers and will help save millions of restaurants across the nation from going under,” he said.

Federal workers were among the few who were pushed into deferring their Social Security payroll taxes for the final four months of 2020. Mr. Trump was trying to offer a payroll-tax cut without congressional support, but all he could do under the law was defer the payments. Most employers chose not to change workers’ paychecks at all because of the complexities and potential liability, but Mr. Trump made federal employees participate.

Currently, the workers, including military service members, are required to pay back deferred taxes over the first four months of 2021, and that could pose hardships for people who aren’t expecting smaller paychecks. The congressional agreement would extend the payback period through December 2021.

“This provision to extend the payment period will provide at least some relief to those caught in Trump’s political shell game,” said Sen. Chris Van Hollen (D., Md.).

Some low-income workers will get flexibility on their 2020 tax returns that Democrats had sought, according to House Speaker Nancy Pelosi (D., Calif.) and Senate Minority Leader Chuck Schumer (D., N.Y.). Recipients of the child tax credit and earned-income tax credit can qualify for the 2020 credits based on their 2019 incomes, if that is better for them. That change can avoid situations where declines in income can shrink a low-income household’s tax credits.

The lower tax rates that beer, wine and spirits makers have had since 2018 will be extended indefinitely.

“The agreement helps ensure that families who faced unemployment or reduced wages during the pandemic are able to receive a strong tax credit based on their 2019 income, preserving these vital income supports for vulnerable families,” Mrs. Pelosi wrote to House Democrats.

The legislation also would extend a variety of tax breaks set to expire at the end of 2020. Those include five-year extensions of tax credits for investing in low-income areas and hiring workers from disadvantaged groups, as well as a five-year extension of a provision helping multinational corporations move money between subsidiaries. All those provisions would now lapse after 2025, setting up a giant tax bill then because the bulk of the 2017 tax cuts for individuals also are scheduled to expire.

“Certainly, it’s not all that I would like to see, but it’s a solid step forward,” said Rep. Kevin Brady (R., Texas), a longtime critic of Congress’s habit of temporary tax-cut extensions.

An assortment of renewable-energy tax breaks would be extended for various lengths of time. That includes incentives for producing wind and solar energy and capturing carbon.

Households with significant medical expenses—including nursing-home residents—would get to keep a more generous version of the deduction that lets them deduct expenses in excess of 7.5% of adjusted gross income instead of 10%. Companies that operate flexible spending account programs for workers to use pretax money on health care and dependent care would get more flexibility to let employees carry balances from one year to the next.

A tax break created this year for charitable contributions would get extended. In 2021, individuals who don’t itemize their deductions could still deduct $300 in donations and married couples could deduct $600.

The employee retention tax credit, effectively a government wage subsidy for struggling businesses, would get extended and made more generous for the employers using it.

Businesses that received Paycheck Protection Program loans would be able to deduct expenses associated with those loans. That move—urged by businesses after an extensive lobbying effort in recent weeks—would overturn a Treasury Department decision that denied the deductions.

Treasury Secretary Steven Mnuchin and many tax experts contend that allowing the deductions and tax-free loan forgiveness amounts to double dipping, but bipartisan lawmakers say they intended that benefit. Negotiators had talked about placing limits on the deductions, but that piece of the plan was being dropped, a GOP aide said early Monday.