The decade that will end this year will be remembered as the glory period for new tax legislation that has come out of Washington. There have been a total of 24 tax acts in the last 10 years that have overhauled our tax code and made into one of the most complex treatises ever written. The pace of change and the complexity of the regulations have befuddled all Americans and many of them have gotten progressively intimidated by the enormity of compliance. Even tax attorneys and CPAs have spent countless hours in continuing education trying to understand each new law and apply it to the benefit of their clients.
The purpose of this article is to analyze two recent pieces of legislation that became law recently and discuss the impact of them on 2010 taxes.
On March 18, 2010, the President signed into law the “Hiring Incentives to Restore Employment Act of 2010” (aka the HIRE Act). The purpose of the hire act was stated in the title—to stimulate employment and make a dent in the 9.7% unemployment rate that is looming like a dark cloud on the US economy. To encourage employers to hire and retain unemployed workers, the HIRE act provides two basic tax breaks:
- Payroll Tax Holiday—Exempts employers from paying employers share of the Social Security employment taxes on wages paid in 2010 on newly hired unemployed workers. The tax holiday applies to workers hired after February 3, 2010 and before January 1, 2011 provided the workers were unemployed for at least 60 days before hire date and the employer is not replacing the new workers with old workers. The payroll tax paid by the employer on wages after March 19, 2010 will be exempt from the 6.2% social security tax for the remainder of the wages for 2010.
- Retention Incentive—As an additional incentive to retain the qualified unemployed workers, the act provides an additional $1,000 tax credit if the workers maintain employment for 52 consecutive weeks.
In addition to the employment incentives, the HIRE act also extends Section 179 deduction until December 31, 2010. Section 179 allows qualifying businesses to deduct up to $250,000 in qualified asset purchases in 2010.
On March 23, 2010, the President also signed two very controversial healthcare bills–Patient Protection and Affordable Care Act (aka Health Care Act) and the Health Care and Education Reconciliation Act (aka Reconciliation Act). Both these acts aim to reform the current unsustainable health care system in the United States and offer health coverage to all Americans.
The centerpiece of the legislation is the mandate that requires most US residents to obtain health insurance. There are host of other provisions ranging from new penalties for not carrying health insurance, large employer mandates to offer coverage, voucher system for lower income employees, “simple” cafeteria options for small businesses etc.
Most of the mandate and other provisions go into effect in years 2014 and beyond. However, starting in 2010, small businesses that offer and pay for at least 50% of the health coverage for heir employees get a tax credit equal to 35% of the premiums paid in 2010, 2011, 2012 and 2013. The credit increases to 50% for years beginning after 2013 for employer’s non-elective contributions towards employees’ health insurance premiums. Another provision of the health bill that affects 2010 is the new 10% tax on indoor tanning services.
The fate of this health legislation in future years and its impact on Americans is hard to predict and many of the previsions could possibly change in the next few years. The November elections and the Presidential election in 2012 could be contributing factors to future amendments. All of us can hope and wish that these new laws actually do make health care affordable to all Americans while maintaining the quality of care.
Amol Nirgudkar, CPA is the managing partner of Reliance Consulting LLC and a partner at Reliance Wealth & Trust Partners LLC and can be reached at (813) 931-7258 or via email at firstname.lastname@example.org