Wednesday, October 28, 2009

Tax Related Provisions of The American Recovery and Reinvestment Act of 2009 Part 3

The following provisions in the American Recovery and Reinvestment Act of 2009 (ARRA) pertain to business.

Making Work Pay Tax Credit. Businesses should use the new withholding rates for their employees. For pension plan administrators, new optional withholding procedures are available to supplement the February withholding tables.

Work Opportunity tax credit. This newly-expanded credit adds returning veterans and "disconnected youth" to the list of new hires covered by the credit that businesses may claim. Certification by the state work force agency is required. In general, an unemployed veteran is a person discharged or released from the military during the five years preceding the hiring date who received unemployment benefits for at least four weeks during the one-year period ending on the hiring date. A “disconnected youth” is a person age 16 to 24 on the hiring date who has not been regularly employed or attending school and who meets other requirements. The WOTC offers tax savings to businesses that hire workers belonging to any of 12 targeted groups, including unemployed veterans and disconnected youth. The other 10 include people ages 18 to 39 living in designated communities in 43 states and the District of Columbia, Hurricane Katrina employees, recipients of various types of public assistance, and certain veterans, summer youth workers and ex-felons. The instructions for Form 8850 detail the requirements for each of these groups.

COBRA: Health Insurance Continuation Subsidy. The IRS has extensive guidance for employers, including an updated Form 941, as well as information for qualifying individuals. Workers who have lost their jobs may qualify for a 65 percent subsidy for COBRA continuation premiums for themselves and their families for up to nine months. Eligible workers will have to pay 35 percent of the premium to their former employers. To qualify, a worker must have been involuntarily separated between Sept. 1, 2008, and Dec. 31, 2009. Workers who lost their jobs between Sept. 1, 2008, and enactment, but failed to initially elect COBRA because it was unaffordable, get an additional 60 days to elect COBRA and receive the subsidy. This subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy

Energy Efficiency and Renewable Energy Incentives. The ARRA provides the following incentives for businesses.
  • New Clean Renewable Energy Bonds (Section 1111): The new law increases the amount of funds available to issue new clean renewable energy bonds from the one-time national limit of $800 million to $2.4 billion
  • Qualified Energy Conservation Bonds (Section 1112): The new law increases the amount of funds available to issue qualified energy conservation bonds from the one-time national limit of $800 million to $3.2 billion
  • Extension of Renewable Energy Production Tax Credit (Section 1101): The new law generally extends the “eligibility dates” of a tax credit for facilities producing electricity from wind, closed-loop biomass, open-loop biomass, geothermal energy, municipal solid waste, qualified hydropower and marine and hydrokinetic renewable energy.
  • Election of Investment Credit in Lieu of Production Credit (Section 1102): Businesses who place in service facilities that produce electricity from wind and some other renewable resources after Dec 31, 2008 can choose either the energy investment tax credit, which generally provides a 30 percent tax credit for investments in energy projects or the production tax credit, which can provide a credit of up to 2.1 cents per kilowatt-hour for electricity produced from renewable sources.
  • Repeal of Certain Limits on Business Credits for Renewable Energy Property (Section 1103): The new law repeals the $4,000 limit on the 30 percent tax credit for small wind energy property and the limitation on property financed by subsidized energy financing. The repeal applies to property placed in service after Dec. 31, 2008.
  • Coordination With Renewable Energy Grants (Section 1104): Business taxpayers also can apply for a grant instead of claiming either the energy investment tax credit or the renewable energy production tax credit for property placed in service in 2009 or 2010.
  • Temporary Increase in Credit for Alternative Fuel Vehicle Refueling Property (Section 1123): The new law modifies the credit rate and limit amounts for property placed in service in 2009 and 2010.

Net Operating Loss Carryback. Small businesses can offset losses by getting refunds on taxes paid up to five years ago. To accommodate the change in tax law, the IRS has updated Publication 536, as well as the instructions for Form 1045 and Form 1139, which small businesses will use to take advantage of the carryback provision. An expanded section 179 deduction and other business-related provisions, are now availabe.

Municipal Bond Programs. There are new ways to finance school construction, energy and other public projects.

Tuesday, October 6, 2009

Method Man Is Arrested For Tax Evasion

Method Man joins a list of other celebrities including New York Mets pitcher Jerry Koosman who have had financial problems paying their taxes. Method Man, whose real name is Clifford Smith, is a Grammy award winning rapper and the founding member of the hip hop group Wu-Tang Clan. Method Man could face up to four years in prison for failing to pay his taxes.
The 38-year-old rapper turned himself in to police in Staten Island, New York for arrest. Authorities say he failed to pay nearly 33,000 US dollars in taxes between 2004 and 2007 and is being charged with repeated failure to file a return and failure to pay taxes.

Monday, October 5, 2009

Tax Related Provisions of The American Recovery and Reinvestment Act of 2009 Part 2

The following provisions pertain to individuals.

Enhanced Credits for Tax Years 2009, The American Recovery and Reinvestment Act (ARRA) provides a temporary increase in the earned income tax credit (EITC) for taxpayers with three or more qualifying children. The maximum EITC for this new category is $5,657. ARRA also increases the beginning point of the phaseout range for the credit for all married couples filing a joint return, regardless of the number of children. These changes apply to 2009 and 2010 tax returns. The earned income tax credit is a refundable credit intended to help people who work but earn modest incomes.

In addition, under ARRA, more families will be eligible for the additional child tax credit because of a change to the way the credit is figured. Taxpayers who cannot take full advantage of the child tax credit because the credit is more than the taxes they owe may receive a payment for some or all of the credit not used to offset their taxes. It is a refundable credit, which means taxpayers may receive refunds even when they do not owe any tax.

ARRA reduces the minimum earned income amount used to calculate the additional child tax credit to $3,000. Before ARRA, the minimum earned income amount was set to rise to $12,550. Reducing the amount to $3,000 permits more taxpayers to use the additional child tax credit and increases the amount of the payments they may receive

Increased Transportation Subsidy. The ARRA also increases employer-provided benefits for transit and parking in 2009. The monthly tax exclusion for employer-provided commuter highway vehicle transportation and transit pass benefits increased to $230, effective from March through December 2009. Employees may exclude from income $230 per month in transit benefits and $230 per month in parking benefits –– up to a maximum of $460 per month. Employees may receive benefits for commuter transportation and transit passes and benefits for parking during the same month; they are not mutually exclusive.
These qualified transportation fringe benefits are excluded from an employee's gross income for income tax purposes and from an employee's wages for payroll tax purposes.

Up to $2,400 in Unemployment Benefits Tax Free in 2009. Under the American Recovery and Reinvestment Act (ARRA), the first $2,400 of unemployment benefits an individual receives in 2009 are tax free. This provision applies only to benefits received in 2009: Normally, unemployment benefits are taxable.

$250 for Social Security Recipients, Veterans and Railroad Retirees. The Economic Recovery Payment will be paid by the Social Security Administration, Department of Veterans Affairs and the Railroad Retirement Board. A one-time payment of $250 will be made in 2009 to:

  • Retirees, disabled individuals and Supplemental Security Income (SSI) recipients receiving benefits from the Social Security Administration.
  • Disabled veterans receiving benefits from the U.S. Department of Veterans Affairs.
  • Railroad Retirement beneficiaries.
The IRS will not make this payment, unlike last year's economic stimulus program. Individuals who may qualify for this year's economic recovery payment should contact their respective agency for more information.

Energy Efficiency and Renewable Energy Incentives. The ARRA provides several tax incentives for individuals to invest in energy efficient products. Here is a list of some of those incentives:

  • Residential Energy Property Credit.
  • Residential Energy Efficient Property Credit.
  • Plug-in Electric Drive Vehicle Credit.
  • Plug-In Electric Vehicle Credit.
  • Conversion Kits
  • Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT.

Health Coverage Tax Credit. The credit increases from 65 percent to 80 percent of qualified health insurance premiums, and more people are eligible.