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ACLI Update

By Regina Rose, Mandana Parsazad and Ryan Derry

Taxing Times, March 2021


2020 Year-End Spending and Relief Package Update

The Consolidated Appropriations Act, 2021 (Pub. L. 116-260, the “Act”) was enacted by the 116th Congress and signed into law by President Trump on Dec. 27, 2020. The Act included a massive spending bill, tax extenders, and another round of COVID-19 relief. A summary of the tax provisions of most interest to life insurers follows.

Minimum Interest Rate for Certain Determinations Related to Life Insurance Contracts

The provision to modernize the two outdated fixed interest rates used in applying the cash value accumulation and guideline premium tests (CVAT and GPT) in section 7702 of the Internal Revenue Code (IRC) was first proposed and passed by the House in the HEROES Act in May 2020. The June ACLI Update column in Taxing Times covered this provision in-depth. The provision enacted and signed into law in December 2020 mirrored the earlier House-passed provision which sets the requirements that long-term life insurance policies must meet to qualify as insurance contracts for tax purposes. When the fixed interest rates were enacted as part of section 7702 of the IRC in 1984, market interest rates were high. The current low interest rate environment, exacerbated by fiscal policy actions taken to address the COVID-19 public health crisis, and the mandatory interest rate assumptions set in 1984 in section 7702 made it exceedingly difficult for life insurers to provide and consumers to maintain long-term life insurance coverage.  It is for these reasons that ACLI advocated for a change in approach, which ties the rates to one of two benchmark interest rates that are periodically updated to reflect economic realities. The interest rates would return to the historic 4 and 6 percent requirements if market rates set forth in the Act exceed those levels in the future. Those rates have worked well for consumers and life insurers since 1984 in more normalized or higher interest rate environments. This fix to section 7702 better matches the realities of today’s unprecedented low interest rate environment which had not previously been anticipated or addressed by the IRC.

Employer Tax Credit for Paid Family and Medical Leave Extension

The Act extended section 45S of the IRC, commonly referred to as the Fischer Tax Credit for five years. Eligible employers that provide paid family and medical leave to employees may take advantage of the credit which is equal to a percentage of wages they pay to qualifying employees while employees are on family and medical leave. Moreover, the IRS guidance has confirmed that salaries paid with proceeds from disability income insurance policies are included in computing the credit.

Look-Through Rule for Related Controlled Foreign Corporations Extension

This provision allows U.S. based companies to redeploy active foreign earnings outside the United States as their business needs may dictate without subjecting such earnings to taxation under Subpart F of the IRC (which eliminates deferral of U.S. tax on some categories of foreign income). Domestic life insurers with controlled foreign corporations will benefit from the five-year extension.

Permanency of the Reduction in Medical Expense Deduction Floor

The Act made permanent the allowance for individuals to deduct unreimbursed medical expenses greater than 7.5 percent of adjusted gross income (AGI). The threshold was 10 percent of AGI before the Act’s passage. The change will allow more policyholders paying LTC and other medical premiums and expenses eligible to claim this deduction if they are eligible to itemize deductions.

Employee Retention Tax Credit Modifications

The Act extended and expanded the employee retention tax credit provision of the CARES Act which was passed in March 2020 to address COVID-19 relief. The employee retention credit was a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer paid to employees after March 12, 2020, and before Jan. 1, 2021 and was available to employers who experienced declines in business operations or gross receipts due to COVID-19. The credit was applicable to all wages paid by employers with 100 or less full-time employees and for employers with over 100 full-time employees, only to wages paid to employees for not working. The Act in December extended the employee retention credit through June 20, 2021. It increased the credit rate from 50 to 70 percent of qualified wages, increased the limit on per-employee creditable wages from $10,000 per year to $10,000 per quarter, and increased the “large employer” full-time employee limit from 100 to 500. The Act also included provisions for improved coordination between the paycheck protection program and the employee retention credit, technical corrections to the CARES Act provision, and a few other clarifications regarding the credit.

Temporary Allowance of Full Deduction for Business Meals

This provision increased the 50 percent tax deduction for business meal expenses provided by a restaurant in 2021 and 2022 to 100 percent.

Temporary Special Rules for Health and Dependent Care Flexible Spending Arrangements

The Act provides taxpayers with flexibility to roll over unused funds in health and dependent care flexible spending arrangements from 2020 to 2021 and 2021 to 2022. It also permits employers to allow employees to make a 2021 midyear prospective change in contribution amounts.

New Markets Tax Credit and Work Opportunity Tax Credit Extension

The Act extended the annual $5 billion allocations of the New Markets Tax Credit from 2021 through 2025. It also extended the carryover period for unused New Markets Tax Credits to 2030.

Empowerment Zone Tax Incentives Extension

This provision extended through 2025 an elective general business credit to employers that hire individuals who belong to at least one of ten targeted groups under the Work Opportunity Tax Credit Program.


Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.

Regina Rose is senior vice president, Taxes and Retirement Security, for the American Council of Life Insurers and may be reached at

Mandana Parsazad is vice president, Taxes and Retirement Security, for the American Council of Life Insurers and may be reached at

Ryan Derry is legislative and regulation analyst for the American Council of Life Insurers and may be reached at