DESCRIPTION OF REVENUE PROVISIONS INCLUDED IN
THE TRADE ADJUSTMENT ASSISTANCE REAUTHORIZATION ACT

Scheduled for Markup

By the

SENATE COMMITTEE ON FINANCE

on June 22, 1999

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

June 18, 1999

JCX-35-99

CONTENTS

INTRODUCTION

DESCRIPTION OF REVENUE PROVISIONS

A. Increase Elective Withholding Rate for Nonperiodic Distributions from Deferred Compensation Plans

B. Add Certain Vaccines Against Streptococcus Pneumonia to the List of Taxable Vaccines

This document,⁽¹⁾ prepared by the staff of the Joint Committee on Taxation, provides a description of revenue provisions included in the "Trade Adjustment Assistance Reauthorization Act." The Act is an original bill is to be considered by the Senate Committee on Finance on June 22, 1999.

The following revenue provisions would be included in the "Trade Adjustment Assistance Reauthorization Act."

A. Increase Elective Withholding Rate for Nonperiodic Distributions
from Deferred Compensation Plans

Present law provides that income tax withholding is required on designated distributions from employer compensation plans (whether or not such plans are tax qualified), individual retirement arrangements ("IRAs"), and commercial annuities unless the payee elects not to have withholding apply. A designated distribution does not include any payment (1) that is wages, (2) the portion of which it is reasonable to believe is not includible in gross income,⁽²⁾ (3) that is subject to withholding of tax on nonresident aliens and foreign corporations (or would be subject to such withholding but for a tax treaty), or (4) that is a dividend paid on certain employer securities (as defined in sec. 404(k)(2)).

Tax is generally withheld on the taxable portion of any periodic payment as if the payment is wages to the payee. A periodic payment is a designated distribution that is an annuity or similar periodic payment.

In the case of a nonperiodic distribution, tax generally is withheld at a flat 10-percent rate unless the payee makes an election not to have withholding apply. A nonperiodic distribution is any distribution that is not a periodic distribution. Under current administrative rules, an individual receiving a nonperiodic distribution can designate an amount to be withheld in addition to the 10-percent otherwise required to be withheld.

Under present law, in the case of a nonperiodic distribution that is an eligible rollover distribution, tax is withheld at a 20-percent rate unless the payee elects to have the distribution rolled directly over to an eligible retirement plan (i.e., an IRA, a qualified plan (sec. 401(a)) that is a defined contribution plan permitting direct deposits of rollover contributions, or a qualified annuity plan (sec. 403(a)). In general, an eligible rollover distribution includes any distribution to an employee of all or any portion of the balance to the credit of the employee in a qualified plan or qualified annuity plan. An eligible rollover distribution does not include any distribution that is part of a series of substantially equal periodic payments made (1) for the life (or life expectancy) of the employee or for the joint lives (or joint life expectancies) of the employee and the employee's designated beneficiary, or (2) over the a specified period of 10 years or more. An eligible rollover distribution also does not include any distribution required under the minimum distribution rules of section 401(a)(9), hardship distributions from section 401(k) plans, or the portion of a distribution that is not includible in income. The payee of an eligible rollover distribution can only elect not to have withholding apply by making the direct rollover election.

Under the proposal, the withholding rate for nonperiodic distributions would be increased from 10 percent to 15 percent. As under present law, unless the distribution was an eligible rollover distribution, the payee could elect not to have withholding apply. The proposal would not modify the 20-percent withholding rate that applies to any distribution that is an eligible rollover distribution.

The proposal would be effective for distributions made after August 31, 1999.

A manufacturer's excise tax is imposed at the rate of 75 cents per dose (sec. 4131) on the following vaccines routinely recommended for administration to children: diphtheria, pertussis, tetanus, measles, mumps, rubella, polio, HIB (haemophilus influenza type B), hepatitis B, varicella (chicken pox), and rotavirus gastroenteritis. The tax applies to any vaccine that is a combination of vaccine components equals 75 cents times the number of components in the combined vaccine.

Amounts equal to net revenues from this excise tax are deposited in the Vaccine Injury Compensation Trust Fund to finance compensation awards under the Federal Vaccine Injury Compensation Program for individuals who suffer certain injuries following administration of the taxable vaccines. This program provides a substitute Federal "no fault" insurance system for the State-law tort and private liability insurance systems otherwise applicable to vaccine manufacturers. All persons immunized after September 30, 1988, with covered vaccines must seek compensation under this Federal program before pursuing civil tort actions under State law.

The proposal would add conjugated streptococcus pneumonia vaccines to the list of taxable vaccines.

The proposal would be effective for vaccine purchases beginning on the day after the date on which the Centers for Disease Control make final recommendation for routine administration of conjugated streptococcus pneumonia vaccines to children. No floor stocks tax would be collected for amounts held for sale on that date.

1. This document may be cited as follows: Joint Committee on Taxation, Description of Revenue Provisions Included in the Trade Adjustment Assistance Reauthorization Act (JCX-35-99), June 18, 1999.

2. All IRA distributions are treated as if includible in income for purposes of this rule.