From MaryDe.Elliston@thomsonreuters.com
Tax changes affecting small business in the 2010 health reform legislation
For owners of small businesses and their workers, the recently enacted health reform legislation has some key provisions to pay attention to. The major ones include: tax credits; excise taxes; and penalties. But whether a business will be affected by them depends on a variety of factors, such as the number of employees the business has. I'm writing to give you an overview of the provisions in the new law with the biggest impact on small business. Please call our offices for details of how the new changes may affect your specific business.
Tax credits to certain small employers that provide insurance. The new law provides small employers with a tax credit (i.e., a dollar-for-dollar reduction in tax) for nonelective contributions to purchase health insurance for their employees. The credit can offset an employer's regular tax or its alternative minimum tax (AMT) liability.
Small business employers eligible for the credit. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost. The business must have no more than 25 full-time equivalent employees (“FTEs”), and the employees must have annual full-time equivalent wages that average no more than $50,000. However, the full amount of the credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of less than $25,000.
Years the credit is available. The credit is initially available for any tax year beginning in 2010, 2011, 2012, or 2013. Qualifying health insurance for claiming the credit for this first phase of the credit is health insurance coverage purchased from an insurance company licensed under state law. For tax years beginning after 2013, the credit is only available to an eligible small employer that purchases health insurance coverage for its employees through a state exchange and is only available for two years. The maximum two-year coverage period does not take into account any tax years beginning in years before 2014. Thus, an eligible small employer could potentially qualify for this credit for six tax years, four years under the first phase and two years under the second phase.
Calculating the amount of the credit. For tax years beginning in 2010, 2011, 2012, or 2013, the credit is generally 35% (50% for tax years beginning after 2013) of the employer's nonelective contributions toward the employees' health insurance premiums. The credit phases out as firm-size and average wages increase. Tax-exempt small businesses meeting these requirements are eligible for payroll tax credits of up to 25% for tax years beginning in 2010, 2011, 2012, or 2013 (35% in tax years beginning after 2013) of the employer's nonelective contributions toward the employees' health insurance premiums.
Special rules. The employer is entitled to an ordinary and necessary business expense deduction equal to the amount of the employer contribution minus the dollar amount of the credit. For example, if an eligible small employer pays 100% of the cost of its employees' health insurance coverage and the amount of the tax credit is 50% of that cost (i.e., in tax years beginning after 2013), the employer can claim a deduction for the other 50% of the premium cost.
Self-employed individuals, including partners and sole proprietors, two percent shareholders of an S corporation, and five percent owners of the employer are not treated as employees for purposes of this credit. Any employee with respect to a self-employed individual is not an employee of the employer for purposes of this credit if the employee is not performing services in the trade or business of the employer. Thus, the credit is not available for a domestic employee of a sole proprietor of a business. There is also a special rule to prevent sole proprietorships from receiving the credit for the owner and their family members. Thus, no credit is available for any contribution to the purchase of health insurance for these individuals and the individual is not taken into account in determining the number of full-time equivalent employees or average full-time equivalent wages.
Most small businesses exempted from penalties for not offering coverage to their employees. Although the new law imposes penalties on certain businesses for not providing coverage to their employees (so-called “pay or play”), most small businesses won't have to worry about this provision because employers with fewer than 50 employees aren't subject to the “pay or play” penalty. For businesses with at least 50 employees, the possible penalties vary depending on whether or not the employer offers health insurance to its employees. If it does not offer coverage and it has at least one full-time employee who receives a premium tax credit, the business will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. So, for example, an employer with 51 employees who doesn't offer health insurance to his employees will be subject to a penalty of $42,000 ($2,000 multiplied by 21). Employers with at least 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit will pay $3,000 for each employee receiving a premium credit (capped at the amount of the penalty that the employer would have been assessed for a failure to provide coverage, or $2,000 multiplied by the number of its full-time employees in excess of 30). These provisions take effect Jan. 1, 2014.
The “Cadillac tax” on high-cost health plans. The new law places an excise tax on high-cost employer-sponsored health coverage (often referred to as “Cadillac” health plans). This is a 40% excise tax on insurance companies, based on premiums that exceed certain amounts. The tax is not on employers themselves unless they are self-funded (this typically occurs at larger firms). However, it is expected that employers and workers will ultimately bear this tax in the form of higher premiums passed on by insurers.
Here are the specifics: The new tax, which applies for tax years beginning after Dec. 31, 2017, places a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan to the extent that the annual premium exceeds $10,200 for single coverage and $27,500 for family coverage. An additional threshold amount of $1,650 for single coverage and $3,450 for family coverage will apply for retired individuals age 55 and older and for plans that cover employees engaged in high risk professions. The tax will apply to self-insured plans and plans sold in the group market, but not to plans sold in the individual market (except for coverage eligible for the deduction for self-employed individuals). Stand-alone dental and vision plans will be disregarded in applying the tax. The dollar amount thresholds will be automatically increased if the inflation rate for group medical premiums between 2010 and 2018 is higher than the Congressional Budget Office (CBO) estimates in 2010. Employers with age and gender demographics that result in higher premiums could value the coverage provided to employees using the rates that would apply using a national risk pool. The excise tax will be levied at the insurer level. Employers will be required to aggregate the coverage subject to the limit and issue information returns for insurers indicating the amount subject to the excise tax.
I hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call.
Friday, March 26, 2010
Tax Changes Affecting Individuals in the 2010 Health Reform Legislation
From MaryDe.Ellison@thomsonreuters.com
Tax changes affecting individuals in the 2010 health reform legislation
I'm writing to give you a brief overview of the key tax changes affecting individuals in the recently enacted health reform legislation. Please call our offices for details of how the new changes may affect your specific situation.
Individual mandate. The new law contains an “individual mandate”—a requirement that U.S. citizens and legal residents have qualifying health coverage or be subject to a tax penalty. Under the new law, those without qualifying health coverage will pay a tax penalty of the greater of: (a) $695 per year, up to a maximum of three times that amount ($2,085) per family, or (b) 2.5% of household income over the threshold amount of income required for income tax return filing. The penalty will be phased in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee or 1.0% of taxable income in 2014, 2.0% of taxable income in 2015, and 2.5% of taxable income in 2016. Beginning after 2016, the penalty will be increased annually by a cost-of-living adjustment. Exemptions will be granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, aliens not lawfully present in the U.S., incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of household income, those with incomes below the tax filing threshold (in 2010 the threshold for taxpayers under age 65 is $9,350 for singles and $18,700 for couples), and those residing outside of the U.S.
Premium assistance tax credits for purchasing health insurance. The centerpiece of the health care legislation is its provision of tax credits to low and middle income individuals and families for the purchase of health insurance. For tax years ending after 2013, the new law creates a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance through an exchange. The premium assistance credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through an exchange. Under the provision, an eligible individual enrolls in a plan offered through an exchange and reports his or her income to the exchange. Based on the information provided to the exchange, the individual receives a premium assistance credit based on income and IRS pays the premium assistance credit amount directly to the insurance plan in which the individual is enrolled. The individual then pays to the plan in which he or she is enrolled the dollar difference between the premium assistance credit amount and the total premium charged for the plan. For employed individuals who purchase health insurance through an exchange, the premium payments are made through payroll deductions.
The premium assistance credit will be available for individuals and families with incomes up to 400% of the federal poverty level ($43,320 for an individual or $88,200 for a family of four, using 2009 poverty level figures) that are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage. The credits will be available on a sliding scale basis. The amount of the credit will be based on the percentage of income the cost of premiums represents, rising from 2% of income for those at 100% of the federal poverty level for the family size involved to 9.5% of income for those at 400% of the federal poverty level for the family size involved.
Higher Medicare taxes on high-income taxpayers. High-income taxpayers will be hit with a double whammy: a tax increase on wages and a new levy on investments.
Higher Medicare payroll tax on wages. The Medicare payroll tax is the primary source of financing for Medicare's hospital insurance trust fund, which pays hospital bills for beneficiaries, who are 65 and older or disabled. Under current law, wages are subject to a 2.9% Medicare payroll tax. Workers and employers pay 1.45% each. Self-employed people pay both halves of the tax (but are allowed to deduct half of this amount for income tax purposes). Unlike the payroll tax for Social Security, which applies to earnings up to an annual ceiling ($106,800 for 2010), the Medicare tax is levied on all of a worker's wages without limit.
Under the provisions of the new law, which take in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,0000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Employers will collect the extra 0.9% on wages exceeding $200,000 just as they would withhold Medicare taxes and remit them to the IRS. Companies wouldn't be responsible for determining whether a worker's combined income with his or her spouse made them subject to the tax. Instead, some employees will have to remit additional Medicare taxes when they file income tax returns, and some will get a tax credit for amounts overpaid. Self-employed persons will pay 3.8% on earnings over the threshold. Married couples with combined incomes approaching $250,000 will have to keep tabs on their spouses' pay to avoid an unexpected tax bill. It should also be noted that the $200,000/$250,000 thresholds are not indexed for inflation, so it is likely that more and more people will be subject to the higher taxes in coming years.
Medicare payroll tax extended to investments. Under current law, the Medicare payroll tax only applies to wages. Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income. A new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000 (unindexed). Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is reduced by properly allocable deductions to such income. However, the new tax won't apply to income in tax-deferred retirement accounts such as 401(k) plans. Also, the new tax will apply only to income in excess of the $200,000/$250,000 thresholds. So if a couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new tax. Because the new tax on investment income won't take effect for three years, that leaves more time for Congress and the IRS to tinker with it. So we can expect lots of refinements and “clarifications” between now and when the tax is actually rolled out in 2013.
Floor on medical expenses deduction raised from 7.5% of adjusted gross income (AGI) to 10%. Under current law, taxpayers can take an itemized deduction for unreimbursed medical expenses for regular income tax purposes only to the extent that those expenses exceed 7.5% of the taxpayer's AGI. The new law raises the floor beneath itemized medical expense deductions from 7.5% of AGI to 10%, effective for tax years beginning after Dec. 31, 2012. The AGI floor for individuals age 65 and older (and their spouses) will remain unchanged at 7.5% through 2016.
Limit reimbursement of over-the-counter medications from HSAs, FSAs, and MSAs. The new law excludes the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through a health reimbursement account (HRA) or health flexible savings accounts (FSAs) and from being reimbursed on a tax-free basis through a health savings account (HSA) or Archer Medical Savings Account (MSA), effective for tax years beginning after Dec. 31, 2010.
Increased penalties on nonqualified distributions from HSAs and Archer MSAs. The new law increases the tax on distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs) of the disbursed amount, effective for distributions made after Dec. 31, 2010.
Limit health flexible spending arrangements (FSAs) to $2,500. An FSA is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Under current law, there is no limit on the amount of contributions to an FSA. Under the new law, however, allowable contributions to health FSAs will capped at $2,500 per year, effective for tax years beginning after Dec. 31, 2012. The dollar amount will be indexed for inflation after 2013.
Dependent coverage in employer health plans. Effective on the enactment date, the new law extends the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the tax year. This change is also intended to apply to the exclusion for employer-provided coverage under an accident or health plan for injuries or sickness for such a child. A parallel change is made for VEBAs and 401(h) accounts. Also, self-employed individuals are permitted to take a deduction for the health insurance costs of any child of the taxpayer who has not attained age 27 as of the end of the tax year.
Excise tax on indoor tanning services. The new law imposes a 10% excise tax on indoor tanning services. The tax, which will be paid by the individual on whom the tanning services are performed but collected and remitted by the person receiving payment for the tanning services, will take effect July 1, 2010.
Liberalized adoption credit and adoption assistance rules. For tax years beginning after Dec. 31, 2009, the adoption tax credit is increased by $1,000, made refundable, and extended through 2011 The adoption assistance exclusion is also increased by $1,000.
I hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call.
Tax changes affecting individuals in the 2010 health reform legislation
I'm writing to give you a brief overview of the key tax changes affecting individuals in the recently enacted health reform legislation. Please call our offices for details of how the new changes may affect your specific situation.
Individual mandate. The new law contains an “individual mandate”—a requirement that U.S. citizens and legal residents have qualifying health coverage or be subject to a tax penalty. Under the new law, those without qualifying health coverage will pay a tax penalty of the greater of: (a) $695 per year, up to a maximum of three times that amount ($2,085) per family, or (b) 2.5% of household income over the threshold amount of income required for income tax return filing. The penalty will be phased in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee or 1.0% of taxable income in 2014, 2.0% of taxable income in 2015, and 2.5% of taxable income in 2016. Beginning after 2016, the penalty will be increased annually by a cost-of-living adjustment. Exemptions will be granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, aliens not lawfully present in the U.S., incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of household income, those with incomes below the tax filing threshold (in 2010 the threshold for taxpayers under age 65 is $9,350 for singles and $18,700 for couples), and those residing outside of the U.S.
Premium assistance tax credits for purchasing health insurance. The centerpiece of the health care legislation is its provision of tax credits to low and middle income individuals and families for the purchase of health insurance. For tax years ending after 2013, the new law creates a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance through an exchange. The premium assistance credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through an exchange. Under the provision, an eligible individual enrolls in a plan offered through an exchange and reports his or her income to the exchange. Based on the information provided to the exchange, the individual receives a premium assistance credit based on income and IRS pays the premium assistance credit amount directly to the insurance plan in which the individual is enrolled. The individual then pays to the plan in which he or she is enrolled the dollar difference between the premium assistance credit amount and the total premium charged for the plan. For employed individuals who purchase health insurance through an exchange, the premium payments are made through payroll deductions.
The premium assistance credit will be available for individuals and families with incomes up to 400% of the federal poverty level ($43,320 for an individual or $88,200 for a family of four, using 2009 poverty level figures) that are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage. The credits will be available on a sliding scale basis. The amount of the credit will be based on the percentage of income the cost of premiums represents, rising from 2% of income for those at 100% of the federal poverty level for the family size involved to 9.5% of income for those at 400% of the federal poverty level for the family size involved.
Higher Medicare taxes on high-income taxpayers. High-income taxpayers will be hit with a double whammy: a tax increase on wages and a new levy on investments.
Higher Medicare payroll tax on wages. The Medicare payroll tax is the primary source of financing for Medicare's hospital insurance trust fund, which pays hospital bills for beneficiaries, who are 65 and older or disabled. Under current law, wages are subject to a 2.9% Medicare payroll tax. Workers and employers pay 1.45% each. Self-employed people pay both halves of the tax (but are allowed to deduct half of this amount for income tax purposes). Unlike the payroll tax for Social Security, which applies to earnings up to an annual ceiling ($106,800 for 2010), the Medicare tax is levied on all of a worker's wages without limit.
Under the provisions of the new law, which take in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,0000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Employers will collect the extra 0.9% on wages exceeding $200,000 just as they would withhold Medicare taxes and remit them to the IRS. Companies wouldn't be responsible for determining whether a worker's combined income with his or her spouse made them subject to the tax. Instead, some employees will have to remit additional Medicare taxes when they file income tax returns, and some will get a tax credit for amounts overpaid. Self-employed persons will pay 3.8% on earnings over the threshold. Married couples with combined incomes approaching $250,000 will have to keep tabs on their spouses' pay to avoid an unexpected tax bill. It should also be noted that the $200,000/$250,000 thresholds are not indexed for inflation, so it is likely that more and more people will be subject to the higher taxes in coming years.
Medicare payroll tax extended to investments. Under current law, the Medicare payroll tax only applies to wages. Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income. A new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000 (unindexed). Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is reduced by properly allocable deductions to such income. However, the new tax won't apply to income in tax-deferred retirement accounts such as 401(k) plans. Also, the new tax will apply only to income in excess of the $200,000/$250,000 thresholds. So if a couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new tax. Because the new tax on investment income won't take effect for three years, that leaves more time for Congress and the IRS to tinker with it. So we can expect lots of refinements and “clarifications” between now and when the tax is actually rolled out in 2013.
Floor on medical expenses deduction raised from 7.5% of adjusted gross income (AGI) to 10%. Under current law, taxpayers can take an itemized deduction for unreimbursed medical expenses for regular income tax purposes only to the extent that those expenses exceed 7.5% of the taxpayer's AGI. The new law raises the floor beneath itemized medical expense deductions from 7.5% of AGI to 10%, effective for tax years beginning after Dec. 31, 2012. The AGI floor for individuals age 65 and older (and their spouses) will remain unchanged at 7.5% through 2016.
Limit reimbursement of over-the-counter medications from HSAs, FSAs, and MSAs. The new law excludes the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through a health reimbursement account (HRA) or health flexible savings accounts (FSAs) and from being reimbursed on a tax-free basis through a health savings account (HSA) or Archer Medical Savings Account (MSA), effective for tax years beginning after Dec. 31, 2010.
Increased penalties on nonqualified distributions from HSAs and Archer MSAs. The new law increases the tax on distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs) of the disbursed amount, effective for distributions made after Dec. 31, 2010.
Limit health flexible spending arrangements (FSAs) to $2,500. An FSA is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Under current law, there is no limit on the amount of contributions to an FSA. Under the new law, however, allowable contributions to health FSAs will capped at $2,500 per year, effective for tax years beginning after Dec. 31, 2012. The dollar amount will be indexed for inflation after 2013.
Dependent coverage in employer health plans. Effective on the enactment date, the new law extends the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the tax year. This change is also intended to apply to the exclusion for employer-provided coverage under an accident or health plan for injuries or sickness for such a child. A parallel change is made for VEBAs and 401(h) accounts. Also, self-employed individuals are permitted to take a deduction for the health insurance costs of any child of the taxpayer who has not attained age 27 as of the end of the tax year.
Excise tax on indoor tanning services. The new law imposes a 10% excise tax on indoor tanning services. The tax, which will be paid by the individual on whom the tanning services are performed but collected and remitted by the person receiving payment for the tanning services, will take effect July 1, 2010.
Liberalized adoption credit and adoption assistance rules. For tax years beginning after Dec. 31, 2009, the adoption tax credit is increased by $1,000, made refundable, and extended through 2011 The adoption assistance exclusion is also increased by $1,000.
I hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call.
Wednesday, March 24, 2010
Key Provisions of 2010 Hire Act
The President is expected to soon sign into law the “Hiring Incentives to Restore Employment Act of 2010” (the 2010 HIRE Act), the centerpiece of which is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers. Here's an overview of these new hiring incentives.
To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800—the maximum amount of wages subject to Social Security taxes—by the end of the year. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after the date of the new law's enactment receive the exemption for payroll taxes.
Here are some additional features of the new hiring incentive:
· The tax benefit of the new incentive is immediate. It puts money into a business' cash flow immediately, since the tax is simply not collected in the first place.
· The tax benefit generally applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution would qualify.
· There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no maximum on the dollar amount of payroll taxes per employer that may be forgiven.
· For workers that would otherwise be eligible for the “Work Opportunity Tax Credit,” the employer must select one benefit or the other for 2010—no double dipping.
· An employer can't claim the new tax breaks for hiring family members.
· A worker who replaces another employee who performed the same job for the employer is not eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
· For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
· The incentive is not biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
· The payroll tax holiday does not apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the fist calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
· The Act creates a similar new set of rules permitting a payroll tax holiday for railroad retirement tax purposes.
· The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker's wages during the 52-consecutive-week period exceed $16,129.03. However, the credit is not available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).
To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800—the maximum amount of wages subject to Social Security taxes—by the end of the year. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after the date of the new law's enactment receive the exemption for payroll taxes.
Here are some additional features of the new hiring incentive:
· The tax benefit of the new incentive is immediate. It puts money into a business' cash flow immediately, since the tax is simply not collected in the first place.
· The tax benefit generally applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution would qualify.
· There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no maximum on the dollar amount of payroll taxes per employer that may be forgiven.
· For workers that would otherwise be eligible for the “Work Opportunity Tax Credit,” the employer must select one benefit or the other for 2010—no double dipping.
· An employer can't claim the new tax breaks for hiring family members.
· A worker who replaces another employee who performed the same job for the employer is not eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
· For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
· The incentive is not biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
· The payroll tax holiday does not apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the fist calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
· The Act creates a similar new set of rules permitting a payroll tax holiday for railroad retirement tax purposes.
· The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker's wages during the 52-consecutive-week period exceed $16,129.03. However, the credit is not available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).
Tuesday, March 23, 2010
IRS WORKS TO IMPROVE ITS TOLL-FREE TELEPHONE SERVICE
IRS is aiming to improve the level of service—its primary measure of providing taxpayers with access to an assistor—of its toll-free telephone program for the 2010 filing season, according to a Treasury Inspector General for Tax Administration (TIGTA) audit released on March 16. The agency's goal is to provide a 71.2% level of service which would be a marked improvement when compared to the last filing season. The level of service over the past four years was as follows: 82% for the 2006 filing season; 82.5% for the 2007 filing season; 77.4% for the 2008 filing season; and 64% for the 2009 filing season. The audit discussed several measures IRS is taking for this filing season. First, the agency plans to increase the number of assistors available during the fiscal year. Second; IRS has established six applications to handle American Recovery and Reinvestment Act of 2009 call volume. The toll-free lines are subdivided into categories called applications, each of which is staffed by assistors who have received specialized training on specific tax issues. Third, the agency has been developing a Web-based application for taxpayers who do not have their prior year adjusted gross income (AGI) or Personal Identification Number.
Monday, March 22, 2010
IRS Updates Allowable Living Expense Standards
The Internal Revenue Service has released the 2010 update to its Allowable Living Expense Standards, which it applies to taxpayers who need to delay full payment of delinquent taxes.
The ALE standards are used to reduce subjectivity in determining what a taxpayer may claim as basic living expenses necessary to avoid undue hardship when the taxpayer must delay full payment of a delinquent tax. The standard allowances are intended to provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas.
The IRS provides national standards for food, clothing and other items, and out-of-pocket health care expenses. Local standards are provided for housing and utilities for different states. For transportation costs, there are national standards for public transportation expenses and car ownership costs, but local standards for automobile operating costs in different parts of the country.
The ALE standards are used to reduce subjectivity in determining what a taxpayer may claim as basic living expenses necessary to avoid undue hardship when the taxpayer must delay full payment of a delinquent tax. The standard allowances are intended to provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas.
The IRS provides national standards for food, clothing and other items, and out-of-pocket health care expenses. Local standards are provided for housing and utilities for different states. For transportation costs, there are national standards for public transportation expenses and car ownership costs, but local standards for automobile operating costs in different parts of the country.
Sunday, March 21, 2010
House passes Chile Contribution bill - Awaits action by Senate
From CPA Letter Daily
The House unanimously approved bipartisan legislation on Wednesday to allow individuals who make charitable contributions to victims of the earthquake in Chile (prior to April 15, 2010) to claim an itemized charitable deduction on their 2009 tax return instead of having to wait until next year to claim these deductions on their 2010 tax return.
The bill, H.R. 4783, also includes a provision that would extend the ability to claim the charitable deduction for contributions made to assist victims of the earthquake in Haiti to the same date on 2009 tax returns. The bipartisan measure was introduced Tuesday by Ways and Means Committee Chairman Sander M. Levin, D-Mich., and ranking member Dave Camp, R-Mich.
“After seeing the immense devastation caused by the earthquakes in Chile and Haiti, we all want to ensure that the American people can join together to express our support and our alliance with the people of these two countries,” said Levin in a statement.
“I am pleased that this important legislation passed the House unanimously, showing the desire of the Congress to find ways to help the victims of the earthquakes in Chile and Haiti,” said Camp in a statement. “I hope it will be promptly passed by the Senate and get the President’s signature.”
On Jan. 20, 2010, the House unanimously passed H.R. 4462, legislation that allows individuals who make charitable contributions to assist victims of the earthquake in Haiti to claim an itemized charitable deduction on their 2009 tax return. President Obama signed the bill into law on Jan. 22, 2010.
In January 2005, Congress enacted similar relief for individuals who made charitable contributions to assist victims of the Indian Ocean tsunami that occurred in late December of 2004. That bill (H.R. 241 in the 109th Congress) passed the House without objection and subsequently passed the
The House unanimously approved bipartisan legislation on Wednesday to allow individuals who make charitable contributions to victims of the earthquake in Chile (prior to April 15, 2010) to claim an itemized charitable deduction on their 2009 tax return instead of having to wait until next year to claim these deductions on their 2010 tax return.
The bill, H.R. 4783, also includes a provision that would extend the ability to claim the charitable deduction for contributions made to assist victims of the earthquake in Haiti to the same date on 2009 tax returns. The bipartisan measure was introduced Tuesday by Ways and Means Committee Chairman Sander M. Levin, D-Mich., and ranking member Dave Camp, R-Mich.
“After seeing the immense devastation caused by the earthquakes in Chile and Haiti, we all want to ensure that the American people can join together to express our support and our alliance with the people of these two countries,” said Levin in a statement.
“I am pleased that this important legislation passed the House unanimously, showing the desire of the Congress to find ways to help the victims of the earthquakes in Chile and Haiti,” said Camp in a statement. “I hope it will be promptly passed by the Senate and get the President’s signature.”
On Jan. 20, 2010, the House unanimously passed H.R. 4462, legislation that allows individuals who make charitable contributions to assist victims of the earthquake in Haiti to claim an itemized charitable deduction on their 2009 tax return. President Obama signed the bill into law on Jan. 22, 2010.
In January 2005, Congress enacted similar relief for individuals who made charitable contributions to assist victims of the Indian Ocean tsunami that occurred in late December of 2004. That bill (H.R. 241 in the 109th Congress) passed the House without objection and subsequently passed the
Saturday, March 20, 2010
IRS boosts criminal investigations in 2009
The Internal Revenue Service said it started a total of 4,121 criminal investigations in 2009, compared with 3,749 a year earlier.
The rise comes amid a busy time for U.S. tax prosecutors. Last year, Swiss bank UBS AG agreed to pay $780 million and hand over information for about 4,500 accounts to settle civil and criminal charges against it.
The agency reported a 13 percent rise in the number of probes the government calls "legal source" crimes. This is income from a legal business in which the income was masked or otherwise hidden. Convictions were up slightly for these crimes.
There was also a 13 percent jump among what the government calls illegal-source financial crimes, those funds from sources such as gambling or gun-running, excluding narcotics.
There was a slight drop in initiation of narcotics-related crimes.
The IRS ran a voluntary amnesty program that ended last year that yielded about 15,000 new taxpayers coming clean with the government.
Authorities say they are culling this information to potentially go after other individuals and other financial institutions that may have been helping Americans evade taxes.
The rise comes amid a busy time for U.S. tax prosecutors. Last year, Swiss bank UBS AG agreed to pay $780 million and hand over information for about 4,500 accounts to settle civil and criminal charges against it.
The agency reported a 13 percent rise in the number of probes the government calls "legal source" crimes. This is income from a legal business in which the income was masked or otherwise hidden. Convictions were up slightly for these crimes.
There was also a 13 percent jump among what the government calls illegal-source financial crimes, those funds from sources such as gambling or gun-running, excluding narcotics.
There was a slight drop in initiation of narcotics-related crimes.
The IRS ran a voluntary amnesty program that ended last year that yielded about 15,000 new taxpayers coming clean with the government.
Authorities say they are culling this information to potentially go after other individuals and other financial institutions that may have been helping Americans evade taxes.
Friday, March 19, 2010
IRS announces help for unemployed taxpayers
From IRS.gov
The Internal Revenue Service has announced several additional steps it is taking this tax season to help people having difficulties meeting their tax obligations because of unemployment or other financial problems.
The steps –– an expansion of efforts that began more than a year ago –– include additional flexibility on offers in compromise for struggling taxpayers, a series of Saturday “open houses” offering taxpayers extra opportunities to work out tax problems face to face with the IRS, special outreach with partner groups to unemployed taxpayers and the availability of more information on a special section of the IRS Web site.
The Internal Revenue Service has announced several additional steps it is taking this tax season to help people having difficulties meeting their tax obligations because of unemployment or other financial problems.
The steps –– an expansion of efforts that began more than a year ago –– include additional flexibility on offers in compromise for struggling taxpayers, a series of Saturday “open houses” offering taxpayers extra opportunities to work out tax problems face to face with the IRS, special outreach with partner groups to unemployed taxpayers and the availability of more information on a special section of the IRS Web site.
Thursday, March 18, 2010
Chances of Being Audited
From IRS Data Book
Of the 138,788,744 total individual income tax returns with a filing requirement (this excludes returns filed only to receive an economic stimulus payment), 1,425,888 were audited. This works out to roughly 1%, the same percentage as for the previous year. Of the total number of individual income tax returns audited in FY 2009, 508,180 (35.64%) were for returns with an earned income tax credit (EITC) claim, roughly the same as for FY 2008.
Only 22.8% of the individual audits were conducted by revenue agents, tax compliance officers, and tax examiners; the bulk of the audits (about 77.1%) were correspondence audits. These percentages are comparable to those for FY 2008.
Following are the selected audit rates for individuals not claiming the EITC:
· For business returns other than farm returns showing total gross receipts of $100,000 to $200,000, 4.2% of returns were audited in FY 2009, versus 3.8% in FY 2008.
· For business returns other than farm returns showing total gross receipts of $200,000 or more, 3.2% of returns were audited in FY 2009, versus 3.1% in FY 2008.
· Of the returns showing farm (Schedule F) income, .3% were audited in FY 2009 versus .6% in FY 2008.
· For returns showing total positive income of $200,000 to $1 million, 2.3% of returns not showing business activity were audited, and 3.1% of returns showing business activity were audited; for FY 2008, these percentages were 2.6% and 2.8% respectively.
· For FY 2009, the audit rate for returns with total positive income of $1 million or more was 6.4%, versus 5.6% in FY 2008.
Not surprisingly, examination coverage increases for higher income earners, but coverage was less than it was for the prior year. For example, the percentage was .67% for those returns with adjusted gross income (AGI) between $100,000 and $200,000 (down from .98% for FY 2008), 1.86% for those with $200,000 to $500,000 of AGI (down slightly from 1.92% for FY 2008), and 5.35% for those with $1 to $2 million of AGI (down from 6.47% for FY 2008).
Of the 138,788,744 total individual income tax returns with a filing requirement (this excludes returns filed only to receive an economic stimulus payment), 1,425,888 were audited. This works out to roughly 1%, the same percentage as for the previous year. Of the total number of individual income tax returns audited in FY 2009, 508,180 (35.64%) were for returns with an earned income tax credit (EITC) claim, roughly the same as for FY 2008.
Only 22.8% of the individual audits were conducted by revenue agents, tax compliance officers, and tax examiners; the bulk of the audits (about 77.1%) were correspondence audits. These percentages are comparable to those for FY 2008.
Following are the selected audit rates for individuals not claiming the EITC:
· For business returns other than farm returns showing total gross receipts of $100,000 to $200,000, 4.2% of returns were audited in FY 2009, versus 3.8% in FY 2008.
· For business returns other than farm returns showing total gross receipts of $200,000 or more, 3.2% of returns were audited in FY 2009, versus 3.1% in FY 2008.
· Of the returns showing farm (Schedule F) income, .3% were audited in FY 2009 versus .6% in FY 2008.
· For returns showing total positive income of $200,000 to $1 million, 2.3% of returns not showing business activity were audited, and 3.1% of returns showing business activity were audited; for FY 2008, these percentages were 2.6% and 2.8% respectively.
· For FY 2009, the audit rate for returns with total positive income of $1 million or more was 6.4%, versus 5.6% in FY 2008.
Not surprisingly, examination coverage increases for higher income earners, but coverage was less than it was for the prior year. For example, the percentage was .67% for those returns with adjusted gross income (AGI) between $100,000 and $200,000 (down from .98% for FY 2008), 1.86% for those with $200,000 to $500,000 of AGI (down slightly from 1.92% for FY 2008), and 5.35% for those with $1 to $2 million of AGI (down from 6.47% for FY 2008).
Wednesday, March 17, 2010
IRS reveals annual "Dirty Dozen" scam list
From IRS.gov
IRS has identified the following tax scams as this year's “Dirty Dozen:”
Return preparer fraud. Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their ploys. IRS is implementing a number of steps for future filing seasons. These include a requirement that all paid tax return preparers register with IRS and obtain a preparer tax identification number (PTIN), as well as both competency tests and ongoing continuing professional education for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents (see related article in Federal Taxes Weekly Alert 01/07/2010).
Hiding income offshore. IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution. For IRS's recent settlement offer for those that voluntarily disclose unreported offshore income, see Federal Taxes Weekly Alert 04/02/2009.
Phishing. This is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim's identity, access bank accounts, run up credit card charges or apply for loans in the victim's name. Phishing scams often take the form of an e-mail that appears to come from a legitimate source. IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues.
Filing false or misleading forms. IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims.
Nontaxable Social Security benefits with exaggerated withholding. IRS has identified returns where taxpayers report nontaxable Social Security benefits with excessive withholding. This tactic results in no income reported to IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty.
Abuse of charitable organizations and deductions. IRS continues to observe the misuses of tax-exempt organizations. These include arrangements to improperly shield income or assets from taxation, as well as attempts by donors to maintain control over donated assets or income from donated property. IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property.
Frivolous arguments. Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000 penalty.
Abusive retirement plans. IRS continues to uncover abuses in retirement plan arrangements, including Roth IRAs. IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies (LLC) to engage in activity that is considered prohibited.
Disguised corporate ownership. Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.
Zero wages. Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed.
Misuse of trusts. For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including IRS.
Fuel tax credit scams. IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty.
IRS has identified the following tax scams as this year's “Dirty Dozen:”
Return preparer fraud. Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their ploys. IRS is implementing a number of steps for future filing seasons. These include a requirement that all paid tax return preparers register with IRS and obtain a preparer tax identification number (PTIN), as well as both competency tests and ongoing continuing professional education for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents (see related article in Federal Taxes Weekly Alert 01/07/2010).
Hiding income offshore. IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution. For IRS's recent settlement offer for those that voluntarily disclose unreported offshore income, see Federal Taxes Weekly Alert 04/02/2009.
Phishing. This is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim's identity, access bank accounts, run up credit card charges or apply for loans in the victim's name. Phishing scams often take the form of an e-mail that appears to come from a legitimate source. IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues.
Filing false or misleading forms. IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims.
Nontaxable Social Security benefits with exaggerated withholding. IRS has identified returns where taxpayers report nontaxable Social Security benefits with excessive withholding. This tactic results in no income reported to IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty.
Abuse of charitable organizations and deductions. IRS continues to observe the misuses of tax-exempt organizations. These include arrangements to improperly shield income or assets from taxation, as well as attempts by donors to maintain control over donated assets or income from donated property. IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property.
Frivolous arguments. Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000 penalty.
Abusive retirement plans. IRS continues to uncover abuses in retirement plan arrangements, including Roth IRAs. IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies (LLC) to engage in activity that is considered prohibited.
Disguised corporate ownership. Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.
Zero wages. Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed.
Misuse of trusts. For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including IRS.
Fuel tax credit scams. IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty.
Friday, March 12, 2010
Americans Eager to Spend Tax Refunds
From WebCPA Daily
After two years of paying down debt and skipping family vacations, many Americans cautiously intend to start spending their tax refunds once again.
According to a new survey by the National Retail Federation, conducted by BIGresearch, 12.5 percent of people expecting a refund plan to treat themselves or their families to a major purchase such as a new television, furniture or car, up from 11 percent last year. Others say they will stash their refund away in savings (40.3 percent), put it toward everyday expenses (28.8 percent) or go on vacation (10 percent).
The survey also found that 43.9 percent of Americans expecting a refund plan to pay down debt, compared to 48 percent in 2009. However, only 65.5 percent of taxpayers are expecting a refund, down from 68.4 percent last year.
“A little bit of ‘free money’ will go a long way for Americans this year,” said NRF president and CEO Tracy Mullin in a statement. “Retailers planning special promotions over the next few months may find that shoppers are a bit more receptive to opening up their wallets than they have been for the past year.”
As the Internet becomes more of a mainstay in homes across the country, the number of people who file their taxes online continues to increase. This year, 54.4 percent of U.S. taxpayers will file their taxes online, up from 50.1 percent in 2007. In addition, one-third (33.6 percent) of consumers will prepare their taxes using computer software, 23.5 percent will use an accountant, 17.6 percent will use a tax preparation service, and 11.8 percent will have a friend, spouse or other relative prepare their taxes for them and will prepare their taxes by hand.
According to the survey, 60.6 percent of Americans filed their taxes by the end of February, meaning that many tax returns have already been received or are on the way. An additional 24.4 percent will file in March, and 15 percent will wait until the last minute and file in April.
After two years of paying down debt and skipping family vacations, many Americans cautiously intend to start spending their tax refunds once again.
According to a new survey by the National Retail Federation, conducted by BIGresearch, 12.5 percent of people expecting a refund plan to treat themselves or their families to a major purchase such as a new television, furniture or car, up from 11 percent last year. Others say they will stash their refund away in savings (40.3 percent), put it toward everyday expenses (28.8 percent) or go on vacation (10 percent).
The survey also found that 43.9 percent of Americans expecting a refund plan to pay down debt, compared to 48 percent in 2009. However, only 65.5 percent of taxpayers are expecting a refund, down from 68.4 percent last year.
“A little bit of ‘free money’ will go a long way for Americans this year,” said NRF president and CEO Tracy Mullin in a statement. “Retailers planning special promotions over the next few months may find that shoppers are a bit more receptive to opening up their wallets than they have been for the past year.”
As the Internet becomes more of a mainstay in homes across the country, the number of people who file their taxes online continues to increase. This year, 54.4 percent of U.S. taxpayers will file their taxes online, up from 50.1 percent in 2007. In addition, one-third (33.6 percent) of consumers will prepare their taxes using computer software, 23.5 percent will use an accountant, 17.6 percent will use a tax preparation service, and 11.8 percent will have a friend, spouse or other relative prepare their taxes for them and will prepare their taxes by hand.
According to the survey, 60.6 percent of Americans filed their taxes by the end of February, meaning that many tax returns have already been received or are on the way. An additional 24.4 percent will file in March, and 15 percent will wait until the last minute and file in April.
Thursday, March 11, 2010
IRS imposter racks up $55K hotel bill
From WEBCPA Daily
A woman who claimed to be an IRS agent working on an extended investigation amassed an unpaid bill of over $55,000 while staying at a California hotel for about two years, and is now facing up to three years in prison.
Sherry Lynn Vertoch, 64, pleaded guilty in late February to impersonating a federal officer and is now being sued by the hotel for breach of contract. In addition to her prison sentence, Vertoch also could be fined $250,000.
Vertoch frequently stayed at the Inn Marin Hotel going back to 2002, according to the San Jose Mercury News, and usually paid in cash, before beginning a two-year-long stay in 2008. She repeatedly told hotel staff that she was a contract employee at the IRS, even though she never worked there, and that they should invoice her for the $79 per night room.
She said she would forward the invoices to her superiors at the IRS, but they would not be able to pay her until the completion of her investigation. She claimed to be a member of an elite team that specialized in investigating large corporations, including Enron, according to the Marin Independent Journal.
One of the hotel’s co-owners, Robert Marshall, told her that he “could not afford to finance the Internal Revenue Service,” and she suggested that he send an invoice to “Accounting Department Federal Investigation IRS.” After he contacted the Treasury Department and learned she was not an IRS employee, she was arrested, according to the San Francisco Chronicle.
The hotel is suing her for $55,175.25 in guest fees, expenses and charges for pet care. She is currently in federal custody and is scheduled to be sentenced on April 20 in U.S. District Court in San Francisco.
A woman who claimed to be an IRS agent working on an extended investigation amassed an unpaid bill of over $55,000 while staying at a California hotel for about two years, and is now facing up to three years in prison.
Sherry Lynn Vertoch, 64, pleaded guilty in late February to impersonating a federal officer and is now being sued by the hotel for breach of contract. In addition to her prison sentence, Vertoch also could be fined $250,000.
Vertoch frequently stayed at the Inn Marin Hotel going back to 2002, according to the San Jose Mercury News, and usually paid in cash, before beginning a two-year-long stay in 2008. She repeatedly told hotel staff that she was a contract employee at the IRS, even though she never worked there, and that they should invoice her for the $79 per night room.
She said she would forward the invoices to her superiors at the IRS, but they would not be able to pay her until the completion of her investigation. She claimed to be a member of an elite team that specialized in investigating large corporations, including Enron, according to the Marin Independent Journal.
One of the hotel’s co-owners, Robert Marshall, told her that he “could not afford to finance the Internal Revenue Service,” and she suggested that he send an invoice to “Accounting Department Federal Investigation IRS.” After he contacted the Treasury Department and learned she was not an IRS employee, she was arrested, according to the San Francisco Chronicle.
The hotel is suing her for $55,175.25 in guest fees, expenses and charges for pet care. She is currently in federal custody and is scheduled to be sentenced on April 20 in U.S. District Court in San Francisco.
Wednesday, March 10, 2010
Earned Income Tax Credit Changes
More workers and working families are eligible for the Earned Income Tax Credit. In particular, expanded benefits are now available for those with three or more qualifying children and married couples. The EITC helps taxpayers whose incomes are below certain income thresholds, which in 2009 rise to:
$48,279 for families with three or more qualifying children
$45,295 for those with two or more children
$40,463 for people with one child
$18,440 for those with no children
One in six taxpayers can claim the EITC, which, unlike most tax breaks, is refundable, meaning that individuals can get it even if they owe no tax and even if no tax is withheld from their paychecks.
In addition, the earned income formula for the additional child tax credit is revised for tax years 2009 and 2010. As a result, more low and moderate income families qualify for the full $1,000 child tax credit. See Form 8812 for more information.
$48,279 for families with three or more qualifying children
$45,295 for those with two or more children
$40,463 for people with one child
$18,440 for those with no children
One in six taxpayers can claim the EITC, which, unlike most tax breaks, is refundable, meaning that individuals can get it even if they owe no tax and even if no tax is withheld from their paychecks.
In addition, the earned income formula for the additional child tax credit is revised for tax years 2009 and 2010. As a result, more low and moderate income families qualify for the full $1,000 child tax credit. See Form 8812 for more information.
Tuesday, March 9, 2010
IRS To Honor Medical Resident FICA Refund Claims
WASHINGTON — The Internal Revenue Service has made an administrative determination to accept the position that medical residents are excepted from FICA taxes based on the student exception for tax periods ending before April 1, 2005, when new IRS regulations went into effect.
The IRS will, within 90 days, begin contacting hospitals, universities and medical residents who filed FICA (Social Security and Medicare tax) refund claims for these periods with more information and procedures. Employers and individuals with pending claims do not need to take any action at this time.
For more information, call 1-800-919-1703 or visit www.irs.gov/charities and click on Medical Resident FICA Refund Claims. Taxpayers with currently pending suits should contact the Department of Justice attorney assigned to the case.
The IRS will, within 90 days, begin contacting hospitals, universities and medical residents who filed FICA (Social Security and Medicare tax) refund claims for these periods with more information and procedures. Employers and individuals with pending claims do not need to take any action at this time.
For more information, call 1-800-919-1703 or visit www.irs.gov/charities and click on Medical Resident FICA Refund Claims. Taxpayers with currently pending suits should contact the Department of Justice attorney assigned to the case.
Monday, March 8, 2010
New Car Buyer Incentives
New car buyers can deduct the state or local sales or excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and eligible taxpayers may claim the deduction for taxes paid on multiple purchases. However, the deduction is limited to the tax on up to $49,500 of the purchase price of each qualifying new vehicle. Qualifying new vehicles must be purchased, not leased, after Feb. 16, 2009, and before Jan. 1, 2010.
Taxpayers who buy a new vehicle may deduct state or local fees or taxes that are similar to a sales tax whether or not their state imposes a sales tax. To qualify, the fees or taxes must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per-unit fee.
The amount of the deduction is reduced for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers. This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A. Itemizers claim the deduction on either Line 5 or Line 7 of Schedule A. See the Schedule A instructions for details. Non-itemizers claim the deduction on new Schedule L, Standard Deduction for Certain Filers.
Taxpayers who buy a new vehicle may deduct state or local fees or taxes that are similar to a sales tax whether or not their state imposes a sales tax. To qualify, the fees or taxes must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per-unit fee.
The amount of the deduction is reduced for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers. This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A. Itemizers claim the deduction on either Line 5 or Line 7 of Schedule A. See the Schedule A instructions for details. Non-itemizers claim the deduction on new Schedule L, Standard Deduction for Certain Filers.
Sunday, March 7, 2010
Deadlines Quickly Approach
Deadlines for filing certain business tax returns are quickly approaching. The following summarizes those deadlines that are occurring soon:
March 15...corporate, s corporation and LLC entities treated as corporations or s-corporations tax returns;
April 15...individual or personal income tax returns, partnership returns and LLC entities treated as single member or partnerships.
Please contact our office at 615 746-4632 to schedule your appointment with our friendly, professional team.
March 15...corporate, s corporation and LLC entities treated as corporations or s-corporations tax returns;
April 15...individual or personal income tax returns, partnership returns and LLC entities treated as single member or partnerships.
Please contact our office at 615 746-4632 to schedule your appointment with our friendly, professional team.
Residential Energy Efficient Property Credit
Residential Energy Efficient Property Credit: Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy efficient property credit, equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Qualifying property purchased for new construction or an existing home is eligible for the credit. Generally, labor costs are included when calculating this credit. Also, no cap exists on the amount of credit available except in the case of fuel cell property.
Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer’s Web site or the product packaging. Normally, a homeowner can rely on this certification. The IRS cautions that the manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits. Use Form 5695, Residential Energy Credits, to figure and claim these credits.
Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer’s Web site or the product packaging. Normally, a homeowner can rely on this certification. The IRS cautions that the manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits. Use Form 5695, Residential Energy Credits, to figure and claim these credits.
Saturday, March 6, 2010
Coverdell Education Savings Plans
This account was created as an incentive to help parents and students save for education expenses. Unlike a 529 plan, a Coverdell ESA can be used to pay a student’s eligible k-12 expenses, as well as post-secondary expenses. On the other hand, income limits apply to contributors, and the total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary.
Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.
Here are some things to remember about distributions from Coverdell accounts:
Distributions are tax-free as long as they are used for qualified education expenses, such as tuition and fees, required books, supplies and equipment and qualified expenses for room and board.
There is no tax on distributions if they are for enrollment or attendance at an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law. Virtually all accredited public, nonprofit and proprietary (privately owned profit-making) post-secondary institutions are eligible.
Education tax credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.
If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.
Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.
Here are some things to remember about distributions from Coverdell accounts:
Distributions are tax-free as long as they are used for qualified education expenses, such as tuition and fees, required books, supplies and equipment and qualified expenses for room and board.
There is no tax on distributions if they are for enrollment or attendance at an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law. Virtually all accredited public, nonprofit and proprietary (privately owned profit-making) post-secondary institutions are eligible.
Education tax credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.
If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.
Friday, March 5, 2010
President Signs Extension of COBRA 65% Subsidy
From Journal of Accountancy
President Barack Obama signed into law on Wednesday the Temporary Extension Act of 2010 (HR 4691), hours after the Senate passed it by a 78–19 vote. The main purpose of the bill is to extend unemployment benefits and health care subsidies for the unemployed, but it also extends through March 31, 2010, a federal tax credit that allows the federal government to subsidize 65% of the cost of COBRA premiums. The law also clarified the treatment of COBRA continuation that results from reductions in hours followed by termination of employment.
The COBRA subsidy was first enacted as part of the American Recovery and Reinvestment Act of 2009, PL 111-5. Under the provision, as long as an eligible individual pays 35% of the premium for COBRA continuation coverage, the group health plan must treat the individual as having paid the full premium. Eligible individuals can receive this subsidy for up to 15 months. Employers are reimbursed for the 65% subsidy by taking a credit on their payroll tax returns.
To be eligible, individuals must have been involuntarily terminated from their employment after Aug. 31, 2008, and before April 1, 2010. The Temporary Extension Act extended the end of the eligible period from Feb. 28, 2010, to March 31, 2010.
The act also added special rules for individuals who lost their health coverage because of a reduction in working hours. Under the act, if an individual did not make a COBRA continuation coverage election when his or her hours were reduced (or made an election but then discontinued COBRA coverage), if the individual is then involuntarily terminated from employment, that will be treated as a qualifying event for COBRA continuation coverage purposes.
President Barack Obama signed into law on Wednesday the Temporary Extension Act of 2010 (HR 4691), hours after the Senate passed it by a 78–19 vote. The main purpose of the bill is to extend unemployment benefits and health care subsidies for the unemployed, but it also extends through March 31, 2010, a federal tax credit that allows the federal government to subsidize 65% of the cost of COBRA premiums. The law also clarified the treatment of COBRA continuation that results from reductions in hours followed by termination of employment.
The COBRA subsidy was first enacted as part of the American Recovery and Reinvestment Act of 2009, PL 111-5. Under the provision, as long as an eligible individual pays 35% of the premium for COBRA continuation coverage, the group health plan must treat the individual as having paid the full premium. Eligible individuals can receive this subsidy for up to 15 months. Employers are reimbursed for the 65% subsidy by taking a credit on their payroll tax returns.
To be eligible, individuals must have been involuntarily terminated from their employment after Aug. 31, 2008, and before April 1, 2010. The Temporary Extension Act extended the end of the eligible period from Feb. 28, 2010, to March 31, 2010.
The act also added special rules for individuals who lost their health coverage because of a reduction in working hours. Under the act, if an individual did not make a COBRA continuation coverage election when his or her hours were reduced (or made an election but then discontinued COBRA coverage), if the individual is then involuntarily terminated from employment, that will be treated as a qualifying event for COBRA continuation coverage purposes.
Thursday, March 4, 2010
IRS has unclaimed refunds
The Internal Revenue Service said it has unclaimed refunds totaling more than $1.3 billion awaiting nearly 1.4 million people who did not file a federal income tax return for 2006, including over $150,000 in the state of California alone.
To collect the unclaimed money, taxpayers must file a return for 2006 with the IRS no later than Thursday, April 15, 2010. The IRS estimates that the median unclaimed refund for tax-year 2006 is $604.
In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury.
By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2006. For example, most telephone customers, including most cell phone users, qualify for the one-time telephone excise tax refund. Available only on the 2006 return, this special payment applies to long-distance excise taxes paid on phone service billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. For details, see the Telephone Excise Tax Refund page on IRS.gov.
In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit. The EITC helps individuals and families whose incomes are below certain thresholds, which in 2006 were $38,348 for those with two or more children, $34,001 for people with one child and $14,120 for those with no children. For more information, visit the EITC Home Page.
To collect the unclaimed money, taxpayers must file a return for 2006 with the IRS no later than Thursday, April 15, 2010. The IRS estimates that the median unclaimed refund for tax-year 2006 is $604.
In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury.
By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2006. For example, most telephone customers, including most cell phone users, qualify for the one-time telephone excise tax refund. Available only on the 2006 return, this special payment applies to long-distance excise taxes paid on phone service billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. For details, see the Telephone Excise Tax Refund page on IRS.gov.
In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit. The EITC helps individuals and families whose incomes are below certain thresholds, which in 2006 were $38,348 for those with two or more children, $34,001 for people with one child and $14,120 for those with no children. For more information, visit the EITC Home Page.
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