President Signs Two-Month Extension of Payroll Tax Cut Affecting Employees and Self-Employed Individuals
President Obama has on December 23, 2011, signed into law the two month extension of the payroll tax cut passed by Congress, just eight days before it was scheduled to expire at the end of 2011. The agreement, reached by House Speaker Boehner and Senate Majority Leader Reid, extends the payroll tax cut until the end of February 2012. It is anticipated that Congress will soon reach an agreement to further extend the tax cut through the rest of 2012.
The employee's share of FICA tax has thus been reduced to 4.2% from 6.2%, as called for by the Tax Relief, Unemployment Insurance Reathorization, and Job Creation Act of 2010.
This tax cut affects most taxpayer, and its provisions are temporary in nature. Contact our office if you have any questions.
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Is Tax Reform on the Horizon?
Negotiations on increasing the debt ceiling, and the downgrade in the U.S. credit rating, have caused many people to wonder whether tax laws are likely to be changed as a result of the angst over the overall financial picture in the United States.
1. The Budget Control Act of 2011, signed by the President on August 2, 2011, raised the debt ceiling without calling for new taxes or tax increases. However, it calls for a bipartisan congressional committee to recommend measures for further deficit reduction. If the committee can't come up with solutions, the act automatically sets procedures to cut $1.2 trillion more from federal budgets through 2021, from defense and entitlement spending.
2. Recently, President Obama attacked "tax preferences" for "high-income" households, proposing tax increases that would affect such households beginning in 2013. "High-income" in this case could mean married people with over $250,000 in household income and single people with income of $200,000 or more.
If you're interesting in how these proposals might affect you or your family, feel free to contact our office.
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Form 1099 Reporting Rules Repealed
President Obama signed legislation repealing the expanded reporting rules for businesses and landlords that had been created by laws passed in 2010. This new law, the Comprehensive 1099 Taxpayer Protection and Replacement of Exchange Subsidy Overpayments Act of 2011, returns the reporting requirements to what they were before health care legislation. These original rules required 1099 issuance to noncorporate providers of services in excess of $600 annually.
The 2010 health care legislation had enlarged reporting to include corporate payees of goods, and as services, in excess of $600, effective in 2012. It also required owners of rental properties to file a Form 1099 for services providers in excess of $600 annually. These landlord reporting requirements were to take effect in 2011. The new law, repealing these reporting requirements, effectively puts the reporting requirements to the way they originally were stated.
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The New Health Care Law
In March 2010, President Obama signed the Patient Protection and Affordable Care Act of 2010, which, as amended, is the most comprehensive health care reform bill in history. Provisions of this law will gradually be placed into effect over the next 8 years. The following provisions are most relevant at the current time:
1. Small businesses with up to 25 employees may qualify for a tax credit for amounts paid for employee health insurance. This is effective in 2010. The maximum credit is 35% of premiums paid by businesses and 25% of premiums paid by tax-exempt organizations. The credit phases out, however, if the average wages paid to employees is between $25,000 and $50,000 annually, and the number of employees is between 10 and 25 full-time equivalent workers.
2. Children can remain on parents' health insurance policies up to (but not including) the age of 27.
3. Most onerous for business, starting in 2012, businesses are required to file a Form 1099 for payments made for goods and services to entities, including corporations, that receive more than $600 in one year from that business.
4. Starting in 2011, employers must report the value of an employee's health insurance benefits on Form W-2.
5. The adoption credit is increased to $13,170, and has been made refundable.
6. Further out, in 2013, the Medicare tax will increase from 1.45% of wages to 2.35% of wages for certain higher-income taxpayers. Also, a new 3.8% Medicare tax will be imposed on unearned income for certain high-income taxpayers.
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If you have any questions about any of these provisions, please contact us!
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