On tax day, Massachusetts Fifth District Congresswoman Niki Tsongas announced the reintroduction of the Small Business Tax Relief and Retirement Restoration Act, legislation that would provide immediate tax relief to small businesses. Under Tsongas' bill, small business owners who were forced to make withdrawals from their 401(k)s and IRAs to keep their businesses going can treat their withdrawal as a loan and can file an amended tax return to receive refunds for any income taxes and early-withdrawal penalties they may have paid to the IRS. Tsongas is also re-filing today the Faster Access and Shorter Transaction Time for Checks Act (FASTT Checks Act) which mandates that banks must provide customers with quicker access to their deposited funds. Both bills were authored by Tsongas after hearing from Fifth District residents about the constraints that current law placed on their small business.
"Small business owners put their hearts into their businesses, often foregoing their own paychecks to keep their businesses afloat and their employees on the payroll," explained Tsongas. "As a result of the financial crisis and ensuing economic downturn, even solid small businesses with a long history of responsible credit use have faced a shortage of the credit they need to fund their businesses. The Small Business Tax Relief and Retirement Restoration Act acknowledges the significant personal sacrifices that small business owners made to keep their businesses going, keep jobs in our communities, and to help our economy to recover."
Currently, it is possible to take out a small loan from a 401(k) but not to take a loan from an Individual Retirement Account, so any withdrawals before retirement made from an IRA or from a 401(k) above the cap come with steep early-withdrawal penalties and income taxes. By treating these necessary withdrawals as a loan, Tsongas' legislation puts money back in the hands of small business owners when it is needed most.
"This bill provides tangible, practical relief needed by so many small business owners who have been forced to use retirement funds to keep people employed and their companies alive," said John Williams, a small business owner from Carlisle. "So often we hear Washington talk about helping small business. This bill thoughtfully addresses the very survival of many small companies during the most difficult of times."
Under Tsongas' bill, a small business owner who lived off of his retirement while putting the salary he would have taken from the business back into the business, would be eligible. One year from the date of enactment of the bill, the small business owner must begin making regular installment payments over a 5-year period to repay the loan (for a total of 6 years), under similar rules currently governing small loans from 401(k) plans.
The second bill that Tsongas is introducing today, the Faster Access and Shorter Transaction Time for Checks Act of 2011 (FASTT Checks Act) guarantees that Americans will be able to access their deposited funds sooner. Under current law, a bank can place a 7-business day hold on checks over $5,000 despite the fact that most checks are now processed electronically giving banks almost instant access to the funds being deposited.
"Prior to electronic banking, banks had reason to hold checks to ensure that payment would in fact be made by another bank," continued Tsongas. "In today's world of e-commerce, when a check is cashed the funds are transferred nearly instantaneously. Accordingly, customers should have access to their hard earned money as soon as it is available. Banks continue to use the seven day check hold rule to inflate their balance sheets, and earn interest on money that is not theirs. This bill puts the power back in the hands of the consumer, guaranteeing their right to access his/her money when it is needed.'
By shortening the hold time that banks are able to place on a check to two business days and counting Saturday as a business day, Tsongas' bill ensures that funds will be available to the customer in a timely manner, unless the bank has reason to suspect fraud or the account is repeatedly overdrawn.