- New federal law brings major funding and policy changes across industries, including health care, transportation, agriculture, and more.
- Review the details to understand how these changes could impact your tax strategies and planning opportunities.
- Pay close attention to updated retirement rules that could impact your fiduciary responsibilities.
Need help understanding how new legislation could impact your organization?
New legislation can bring new opportunities — and new requirements. The Consolidated Appropriations Act of 2023 (the act) contains 12 fiscal year appropriation bills totaling $1.7 trillion in spending.
These funding and policy changes could affect tax planning opportunities, financial reporting, retirement plan requirements, and more in organizations across industries. We walk through the highlights.
Key industries impacted
Along with funding the federal government, the act included dozens of health care policies spanning all types of health care services and programs — from physician payments and rural hospital programs to addressing mental health and substance use disorder (SUD). The legislation also included policies on winding down the public health emergency for state Medicaid programs.
In many instances, agency funding levels for discretionary spending are increased over current-year levels, such as the Department of Health and Human Services increase of nearly $10 billion, and more than $22 billion going to the Department of Veterans Affairs.
Some key insights related to health care funding include:
- Mandatory 4% Medicare PAYGO cuts averted
- Public health emergency (PHE) flexibilities extended for telehealth, hospital at home
- Wind down of required state Medicaid coverage and funding bump
- Physician pay cut partially reduced and 200 new residency slots created
- Mental, behavioral health, and substance use disorder a focus
The act provides $87.3 billion for transportation, housing and urban development, and related agencies. Overall, that’s a nearly 8% increase over 2022 spending. Specifically, the Department of Transportation will receive $106.3 billion in budgetary resources. The legislation is designed to:
- Create and sustain jobs largely through the repair, maintenance, and improvement of the nation’s infrastructure systems
- Fully implement investments identified in the Infrastructure Investment and Jobs Act
- Promote safe transportation
- Reduce emissions and address inequities in transportation programs
Transportation businesses could be indirect beneficiaries of this spending bill through investments in the nation’s infrastructure systems, such as better roads, bridges, airports, and more. Safer and cleaner vehicles and transportation systems (including road, rail, water, and air) and stronger enforcement of rules and regulations could help create a level playing field. Multiple grant opportunities exist, which are largely targeted toward state and local governments. Some of these opportunities include:
- $20 million in grants through national infrastructure investments to assist disadvantaged communities and areas with ongoing poverty
- $558.6 million for airport improvement grants and projects
- $13.6 billion for transit formula grants to expand bus fleets and increase the state of good repair
- $2.6 billion for capital investment grants to create new transit routes across the nation
- $542 million for transit infrastructure grants and projects to assist transit agencies in purchasing no- and low-emission buses, as well as improve urban and rural ferry systems
The transportation, housing and urban development, and related agencies eligible for a grant could find opportunities to receive funding and accomplish transportation-related goals to enhance equity, infrastructure, safety, and efficiency and improve the environment.
Agriculture and conservation
The act includes $242 billion in funds for agriculture, earmarked for both mandatory spending (such as the Supplemental Nutrition Assistance Program) and discretionary spending, which included:
- $4 billion for rural development programs, in addition to the $2 billion previously provided in the Infrastructure Investment and Jobs Act
- $455 million provided to expand broadband in rural America
- $1.47 billion provided to rural water and waste program loans
- $500 million to water and waste grants
- $2.2 billion of international food aid to promote U.S. agriculture
- $22.8 million for the National Organic Program to protect the integrity of the USDA organic label
- $30.2 million for oversight and enforcement of the Packers and Stockyard Act
- $1.2 billion for the Animal and Plant Health Inspection Service to help support programs to control or eliminate plant and animal pests and diseases
- $1.2 billion provided for food safety and inspection programs to support mandatory inspection activities
- $3.5 billion provided for agricultural research programs
- $1 billion allocated to private landowners to conserve and protect their land, which includes provisions for the timber and forestry industry
While the act reduced the IRS budget by $275 million related to business system modernization, the IRS has been given more authority to crack down on conservation easement transactions (syndicated conservation easements). In addition, special funding will enable the IRS to hire more agents to address the backlog of tax returns and correspondence.
The act also includes significant changes to the U.S. retirement system as many Americans do not have enough money saved for retirement. These new provisions include sweeping changes intended to enhance and protect retirement security for Americans.
Some key changes include:
- Requiring employers to automatically enroll participants in workplace retirement plans
- Increasing the age for required minimum distributions
- Establishing an enhanced catch-up contribution for certain people age 60 and over
- Providing employers the option to make a retirement plan matching contribution on employees’ student loan repayments
- Allowing part-time employees greater access to workplace retirement plans
- Permitting penalty-free withdrawals from retirement accounts for qualifying emergencies
- Increasing tax incentives and credits for smaller employers to offer retirement plans
Most of these changes do not go into effect immediately. In some instances, you may need to make amendments to existing plan documents.
Financial reporting considerations
In accordance with ASC 740-10, entities must prepare income tax provisions reflecting the laws that are enacted and effective for the relevant financial statement period (e.g., calendar year 2022). Further, entities are required to account for changes in tax laws in the period that includes the enactment date of the changed legislation.
While a variety of legislation was issued and/or enacted during 2022, a few key items of existing tax legislation coming into effect that many taxpayers and law makers expected to be deferred within the act were not included. These key items include the following:
Section 174 – Amortization of research and experimental expenditures
As a result of the Tax Cuts and Jobs Act of 2017 (TCJA), taxpayers must capitalize research and experimental expenses, including software development costs, in tax years beginning after December 31, 2021. The domestic expenses capitalized will be amortized over five years and foreign expenses capitalized will be amortized over 15 years.
In addition, taxpayers should assess the impact on their organization’s financial statements from a current tax versus deferred tax perspective.
Section 163(j) – Interest
The TCJA amended Section 163(j) to limit taxpayers' business interest deductions to 30% of adjusted taxable income plus business interest income and floor plan financing.
For tax years beginning before January 1, 2022, adjusted taxable income included an addback for tax depreciation, amortization, and depletion. For tax years beginning after December 31, 2021, adjusted taxable income will no longer include an addback for depreciation, amortization, or depletion.
Section 168(k) – Bonus depreciation
The TCJA amended Section 168(k) to allow for 100% bonus depreciation on qualified property placed in service after September 27, 2017, and before January 1, 2023. For qualified property placed in service during calendar years 2023 through 2027, bonus depreciation is reduced to 80% in 2023 and reduced by 20% each year thereafter down to 0% eligibility for 2027 and beyond.
Subsequently enacted tax legislation
The above coming effective legislation remains an area of focus for congress. Should new legislation be enacted in a subsequent period, but before annual or interim financial statements are issued, entities must:
- Evaluate the impact of the change on any reported income tax balances recorded and disclosed in the relevant financial statements
- Evaluate materiality of the impact(s) of the subsequently enacted legislation
- Potentially provide a disclosure of the impact(s) as a subsequent event in accordance with ASC 855
Consult with your financial statement auditors regarding any potential subsequent event disclosures.
How we can help
While the act may bring changes to organizations across industries, it can also bring opportunities. CLA’s tax and industry professionals can help you navigate legislation changes and how they impact you, including identifying potential tax opportunities.