Recent News and Information
2011 Small Business Health Care Tax Credit. The Small Business Health Care Tax Credit was enacted to help small businesses afford the cost of covering their workers. Effective immediately, this credit can cover up to 35% of the premiums a small business pays to cover its workers. In 2014, the rate will increase to 50%. The exact amount of the credit can be difficult to determine. To qualify, the small business must:
(1) have fewer than 25 full-time equivalent employees
(2) pay average annual wages below $50,000 per full-time equivalent employees
(3) contribute at least 50% of each employee's premium
Owners are excluded, and should not be counted in number of employees, wages, or premium contribution amount. Tax credits can't be larger than actual income tax liability. For specific details, here is the IRS web site. To help you determine the size of the tax credit, there are a number of calculators such as here and here and here. Flyer here. Worksheet here. Examples here. Form 8941 here.
2010 Tax Organizer. To assist you in assembling your tax information and to assure that you are taking advantage of all allowable deductions. View and print pdf here.
Recent Tax Lawn Changes/Extensions. The latest federal tax law extends the Bush tax cuts, which were scheduled to expire at the end of 2010. Additional elements of the tax package are designed to help the economy continue to recover.
| |
Previous law |
New tax law |
| Marginal income tax rates |
10%, 15%, 25%, 28%, 33%, 35% |
Extended through 2012. |
| Long-term capital gains tax |
0% (lowest two brackets)
15% (all others) |
Extended through 2012. |
| Short-term capital gains tax |
Taxed at ordinary income tax rates |
Extended through 2012. |
| Qualified dividends tax* |
0% (lowest two brackets)
15% (all others) |
Extended through 2012. |
| Payroll tax |
Employees pay 6.2% in Social Security tax. |
Tax reduced to 4.2% for 2011 only. |
| Estate tax |
None. |
For decedents dying in 2010–2012, 35% rate on assets over $5 million (to be adjusted for inflation in 2012). Additional details below. |
| Gift tax |
35% rate after $1 million exemption |
For 2010 gifts, 35% rate after $1 million exemption.
For 2011–2012 gifts, 35% rate after $5 million exemption (to be adjusted for inflation in 2012). |
| Generation-skipping transfer (GST) tax |
None |
Rate is 0% in 2010, 35% in 2011–2012. Exemption is $5 million in 2010–2012 (to be adjusted for inflation in 2012). |
| Child tax credit |
$1,000 per child living at home. |
Extended through 2012. |
| Tuition tax credit |
$2,500 per college student. |
Extended through 2012. |
* Generally, for a dividend to be classified as qualified, you must have held that stock unhedged for at least 61 days out of the 121-day period that began 60 days before the ex-dividend date. For certain preferred stocks, the relevant holding period is at least 91 days out of the 181-day period beginning 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days. If the preferred dividends are due to periods totaling less than 367 days, the holding period in the previous sentence applies.
Estate Tax Resolved for 2 Years
The legislation cleared away the cloud of uncertainty over the estate tax until the end of 2012. The tax had disappeared this year but, absent Congressional action, was going to return in 2011 with a top tax rate of 55% for assets over $1 million. The new rate will be 35% for assets over $5 million. In addition, estates filing tax returns for decedents dying in 2010 now have the choice of applying the new estate tax rules or the original 2010 rule, which imposed no estate tax but could result in beneficiaries paying additional capital gains tax.
A 1-year Payroll Tax Cut
One important provision will put more money into the pockets of everyone paying Social Security payroll tax. For 2011 only, this tax will be reduced 2 percentage points, from 6.2% to 4.2%. For someone making $100,000, that's an extra $2,000 for the year. The tax isn't levied on income over $106,800 in 2011.
Other Tax Items of Interest
- Alternative minimum tax (AMT): For 2010 and 2011, Congress temporarily raised the ceiling on exemptions and credits to avoid snaring millions of taxpayers in the AMT, which hasn't been adjusted for inflation. The tax was originally designed to prevent those with the highest income levels from paying minimal or no income tax.
- Tax-free IRA distributions to charity: Congress extended a benefit for IRA owners. For tax years 2010 and 2011, tax-free distributions of up to $100,000 per taxpayer, per taxable year, can be made to charities by individuals 70½ and older. Because the law was passed so late in the year, individuals can make charitable transfers during January of 2011 and treat them as if they were made during 2010.
- IRA conversions: Congress didn't tinker with the rules for IRA conversions. Beginning in 2010, anyone can convert a traditional IRA to a Roth IRA, no matter how high the income. For 2010 conversions, the resulting income could be spread across 2011–2012. Now that the tax rates have been set for two years, tax planning may be easier. Keep in mind that after 2010, the amount converted must be declared as income for the year in which it occurs.
- Paying for college: The contribution limit to Coverdell education savings accounts remains at $2,000, and tax-free withdrawals for precollege educational expenses will continue to be allowed.
- Sales tax deduction: Individuals can claim a deduction for general sales taxes instead of a deduction for state and local income taxes through 2011.
- Phase-out of deductions: For those with higher incomes, itemized deductions and personal exemptions will not be subject to phase-outs through 2012.
Florida Unemployment Tax - Wage Base and Special Annual Assessment
- Taxable wage base for 2011 will remain $7000.
- Taxable wage base for 2010 scheduled to increase to $8,500 through at least 2014. The State of Florida has continued to borrow funds from the federal government to pay unemployment compensation benefits since the trust fund was depleted in 2009. If the state has not fully repaid the principal of the loans by the end of 2014, the taxable wage base will remain $8,500 until the federal loans have been fully repaid.
- Special Annual Assessment for Federal Interest. As mentioned earlier, the State of Florida has borrowed funds from the federal government to pay unemployment compensation benefits. All contributing employers will pay a share of the federal interest payment through a special annual assessment. This assessment must be paid by June 30, 2011. Each employer will pay their proportionate share according to the calculation specified in law. The Department of Revenue will send notices by February 1, 2011, explaining the calculation of the assessment. It will include a coupon for the employer to pay their share of the interest on the federal advances.
2010 Patient Protection and Affordable Care Act, and the Health Care and Education Reconciliation Act. Taken together these two bills comprise the health care legislation and include the following key features:
- A tax credit of up to 35% is available for employers with no more than 25 Full-Time employees and with average annual wages not in excess of $50,000. Flyer here. Worksheet here. Examples here. Form 8941 here.
- Health care coverage is extended to dependant children under age 27.
- A 10% indoor tanning tax is imposed.
- $250 will be paid to qualified Medicare participants to help with the Part D coverage gap.
- The credit for unprocessed biofuels is eliminated
- The adoption credit is increased by $1,000 and made refundable
- The adoption assistance exclusion is increased by $1,000.
- A High-Risk pool for people with pre-existing medical conditions is established.
- Group and individual plans are prohibited from placing lifetime dollar limits on coverage
- Insurers are prohibited from rescinding coverage except in cases of fraud.
2010 Hiring Incentives to Restore Employment Act (HIRE). Signed into law by the President on March 18, 2010. This new law was designed to stimulate employment by extending the section 179 limits and by creating a Payroll Tax Holiday and $1,000 Retained Worker credit. Qualified employers are relieved from the employer share of OASDI tax (6.2%) on newly hired unemployed workers. The worker must be hired after February 3, 2010 and before January 1, 2011. The relief applies to wages paid after March 18, 2010 and before January 1, 2011.
Workers must sign an affidavit that they have not been employed for more than 40 hours during the 60-day period before employment begins. There is no payroll tax holiday for hiring a related party. A $1,000 credit can be claimed for each "retained worker." A retained worker is a newly hired unemployed worker (as defined above) who was employed for at least 52 consecutive weeks and whose wages in the last 26 week period is at least 80% of the wages for the first 26 week period.
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