Obamacare enrollment

This won't affect most people as they're either covered by an employer health plan or by Medicare. But it may affect some of their children and friends.

https://www.coveredca.com/
This is the California exchange site. The Spanish web portal isn't ready yet and I don't know if they plan to have any other language portal.

The federal web site, www.healthcare.gov, has had many problems on its first day. But there is plenty of time to sign up.

It's questionable whether healthy young folks should sign up purely from a financial point of view. The plan calls for young insureds to subsidize the elderlies. Their premium will therefore be high.

There are four different plans, all with the same coverage. The difference is the amount of monthly premium vs the amount of annual deductibles and co-pays. The Platinum plan has the highest premium but the lowest deductible and co-pay. So if one needs extensive medical care, s/he should sign up for the Platinum plan.

People making up to 400% of poverty level will get federal subsidies on a sliding scale. But if you make just $1 over that threshold, you will lose the entire subsidy. On a family plan, even if one family member is covered by an employer health plan, you will lost the federal subsidy as well. That's why some people have suggested Obamacare may discourage marriages and encourage divorces.
http://www.marketwatch.com/story/will-obamacare-hurt-job-creation-and-marriage-2013-09-27

To get the federal subsidy, one must sign up through the exchanges.

The administration has been touting employers could get up to 35% tax credit for providing their employees with health insurance, but that's a myth in most cases.
http://www.marketwatch.com/story/small-business-tax-credit-thanks-to-obamacare-2013-10-02

IRS Proposed Regulations on Obamacare

CCH Explanation:
http://www.cchgroup.com/wordpress/index.php/tax-headlines/federal-tax-headlines/irs-releases-proposed-regulations-answers-questions-on-net-investment-income-tax-and-additional-medicare-tax-nprm-reg-130507-11-nprm-reg-130074-11-notices/

New 3.8 Percent Tax on Investment Income
http://www.parkertaxpublishing.com/public/REG-130507-11.pdf

0.9 Percent Additional Medicare Tax
http://www.parkertaxpublishing.com/public/REG-130074-11.pdf

2.3% Excise Tax on Medical Device
http://www.irs.gov/pub/irs-drop/n-12-77.pdf

Rules Relating to Additional Medicare Tax
https://www.federalregister.gov/articles/2012/12/05/2012-29237/rules-relating-to-additional-medicare-tax

http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

Disclosure of tax return information on eligibility requirements for health insurance affordability programs
http://www.irs.gov/pub/irs-drop/reg-119632-11.pdf

Additional Requirements for Charitable Hospitals
http://www.irs.gov/pub/irs-drop/reg-130266-11.pdf

Here is a link to the IRS web site on its various news releases and guidance on Obamacare:
http://www.irs.gov/uac/Affordable-Care-Act-of-2010:-News-Releases,-Multimedia-and-Legal-Guidance

Fiscal Cliff Explained

http://www.forbes.com/sites/rickungar/2012/11/10/the-fiscal-cliff-explained/

http://blogs.wsj.com/washwire/2012/10/01/study-fiscal-cliffs-broad-tax-hit/

http://www.sacbee.com/2012/11/15/4986952/fiscal-cliff-could-knock-counties.html

Affordable Care Act Changes in 2013

http://blog.accountants.intuit.com/?p=18853

The Affordable Care Act was enacted on March 23, 2010 and includes the following important tax provisions that take effect in 2013.

Increased tax for high-earning workers and self-employed
The Medicare payroll tax is the main source of financing for Medicare’s hospital insurance trust fund. This fund is responsible for paying the medical expenses for beneficiaries who are age 65 and older or disabled. Under current law, wages are subject to a 2.9% Medicare payroll tax with workers and employers each responsible for half or 1.45%. Self-employed individuals pay both halves or 2.9%. The Medicare tax is levied on all wages or earned income without limit.

Under the new law, there will be an additional .9% hospital insurance tax (2.35% in total) that will apply to wages received in excess of $250,000 for married filing joint; $125,000 for married filing separate; and $200,000 for other filing statuses. This additional .9% tax applies to the employee’s portion of the Medicare payroll tax and is collected by the employer for wages in excess of $200,000. Self-employed individuals are also responsible for the additional .9% hospital insurance tax.

Surtax on unearned income of higher-income individuals
Currently, the Medicare payroll tax only applies to wages or earned income. Under the new law, the Medicare tax will also apply to investment income of individuals, estates and trusts. The surtax is set at 3.8% of the lesser of: 1) the taxpayer’s net investment income; or 2) the excess of modified adjusted income over $250,000 for married filing joint or qualified widow, $125,000 for married filing separate, and $200,000 for other filing statuses. For example, if a married couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new surtax.

Net investment income includes interest, dividends, royalties, rents, gross income from passive activities and the net gain from disposition of property (other than trade or business). Investment income is reduced by any allocable investment deductions. Income from tax-deferred retirement accounts (401(k) plans) or excluded items (interest on tax-exempt bonds) is not included in the definition.

Higher threshold for deducting medical expenses
Currently, taxpayers can take an itemized deduction for unreimbursed medical expenses only to the extent that expenses exceed 7.5% of the taxpayer’s adjusted gross income. Under the new law, the AGI floor is raised from 7.5% to 10%. The AGI floor for individuals age 65 and older remains at 7.5% through 2016, then it is increased to 10%.

Dollar cap on contributions to health FSAs
A Flexible Spending Arrangement (FSA) is an tax favored account and is established through an employer’s cafeteria plan. Under an FSA, an employee can set aside a portion of earnings to pay for expenses, such as medical, dependent care or other expenses, as established in the cafeteria plan. Currently, there is no limit on contributions to health FSAs. Under the new law, allowable contributions to health FSAs will capped at $2,500 per year and indexed for inflation after 2013.

Deduction eliminated for retiree drug coverage
A sponsor of a retiree prescription drug plan is eligible for subsidy payments received from the Health and Human Services department. The subsidy is equal to a portion of the retiree’s gross covered prescription drug costs. Subsidies are excludable from the taxpayer’s gross income.

Under current law, a taxpayer may claim a business deduction for any covered retiree prescription drug expenses. Under the new law, amounts otherwise allowable as a deduction for retiree prescription drug expenses must be reduced by the excludable subsidy payments received. In effect, this provision eliminates the double benefit the taxpayer may receive.

Why the Health Care Tax Credit Eludes Many Small Businesses

http://www.cnbc.com/id/49178782
By: Robb Mandelbaum, The New York Times

The Agenda has now profiled three small businesses that are struggling in different ways with providing health insurance to employees. (Previous related stories: Small-Business Health Care Profiles) The companies are very different — they trade in very different parts of the economy, and couldn't be located much further apart geographically — but they do have one thing in common: Though all three have fewer than 25 employees, not one has qualified for the tax credit in the Affordable Care Act that was intended to help small businesses pay for health insurance. Indeed, the credit is one element of the controversial health law that has already fallen short of expectations.

Estimates of the number of businesses eligible to take the tax credit have ranged from 1.4 million to 4 million companies, but in May, the Government Accountability Office reported that only 170,300 firms actually claimed the credit in 2010. Of these, only a small fraction, 17 percent, were able to claim the whole credit.

For eligible companies, the credit effectively refunds 35 percent of health insurance expenses between 2010 and 2013.* After 2014, the credit increases to 50 percent and is available for any two consecutive years. The credit is fully available to companies with 10 or fewer full-time employees and average wages below $25,000. It phases out as the number of employees rises to 25 and wages grow to $50,000. In 2009, there were about 4.6 million companies with fewer than 10 employees, according to the Census Bureau, and 5.7 million with fewer than 100.

The credit was aimed squarely at the smallest companies, which rarely offer health insurance to employees. However, as we reported two weeks ago, it appears not to have persuaded very many to start offering insurance. The most recent study of employer health insurance from the Kaiser Family Foundation found that just half of all companies with fewer than 10 employees offered insurance, a share that has not moved much since 2005. 

So why has the credit fallen short of expectations? The G.A.O. concluded that the credit was too small to sway business owners. Moreover, it said, claiming the credit is a task so complicated as to discourage many companies from trying. Companies have to determine the number of hours each employee worked in the year, as well as compile information about their insurance premiums. "Small-business owners generally do not want to spend the time or money to gather the necessary information to calculate the credit, given that the credit will likely be insubstantial," the report said, citing conversations with tax preparers. "Tax preparers told us it could take their clients from two to eight hours or possibly longer to gather the necessary information to calculate the credit and that the tax preparers spent, in general, three to five hours calculating the credit."

The G.A.O. report hints at the complexity with this delicious example:

On its Web site, I.R.S. tried to reduce the burden on taxpayers by offering "3 Simple Steps" as a screening tool to help taxpayers determine whether they might be eligible for the credit. However, to calculate the actual dollars that can be claimed, the three steps become 15 calculations, 11 of which are based on seven worksheets, some of which request multiple columns of information.

It may be tempting to hold the Internal Revenue Service responsible for whatever burden accompanies the tax credit, but in this case, the complexity is written directly into the law. It turns out that legislators wrote the provision in a way that makes it appear more generous than it really is. Many businesses with both fewer than 25 employees and average wages below $50,000 are in fact unable to claim the credit.

Under the law, once such a business has calculated its potential credit, it is required to reduce the credit first to account for any excess employees over 10 and then separately reduce the potential credit to account for any excess average wages paid over $25,000. For many companies, the two reductions exceed the potential credit itself - meaning the business gets no credit.

That's what happened to Carrie Van Dyck, who along with her husband owns the Herbfarm Restaurant outside of Seattle. Excluding its owners, the Herbfarm, which we profiled in June, employed the equivalent of about 21 or 22 full-time staff members, who were paid an average wage of about $35,000 - a few thousand dollars over the credit's threshold for 21 employees. The result surprised Ms. Van Dyck, she said recently by e-mail, because "it would seem that we are a pretty typical small, mom-and-pop type business that this should apply to."

Of course, by making the credit less generous, the senators who wrote the law made it less expensive to the United States Treasury. Now it is apparent that credit will be even cheaper than planned: initially it was expected to cost the Treasury $2 billion in 2010; instead it cost the government only a quarter of that.

The law also excludes owners and owners' families from counting toward the credit, which can cut both ways. On the one hand, owners don't count as employees and their salaries are excluded from the annual wages, exclusions that could make some companies eligible for a bigger credit than they might otherwise have gotten. On the other hand, premiums paid for the owners' and their families' insurance aren't eligible for the credit, which for some companies, as You're The Boss commenter JAB recently noted, "greatly reduces the incentive to provide coverage for employees."

The White House has said that the number of businesses claiming the credit for 2011 has grown to at least 360,000, but that is still well below even the smallest estimate of eligible businesses. Some advocates for the law say that more businesses will take advantage of the credit in 2014, when it grows to 50 percent, especially if the new insurance exchanges make it easier and cheaper for small companies to offer insurance.

The Obama administration has proposed making more businesses eligible for the credit, in part by starting phase-outs at higher thresholds, and also by changing the way it is calculated so that every business within the limits, such as the Herbfarm Restaurant, can take some amount of credit.

But judging from the comments of Representative Sam Graves, chairman of the House Small Business Committee, the initiative is unlikely to pass a Republican-controlled House anytime soon. "This tax credit has already largely failed to attract small-business owners, and expanding it will not make the president's health care law affordable," the Missouri Republican said in a statement. "For small employers that do not offer health insurance, tax incentives are unlikely to cause many of them to choose a massive new expense they just cannot afford in the first place." It was Mr. Graves who sought the G.A.O. report.

Of course, a business denied a credit has not been made worse off by the 2010 health law. But the law surely has raised and dashed a lot of hopes, and these are the early days - the sweeping changes that are the law's hallmark don't come until 2014.

*There are, of course, many caveats here, but the main one is that the company has to pay at least half of the premium.

 

Two million more expected to pay penalty under Obamacare

http://money.cnn.com/2012/09/19/news/economy/healthcare-law-penalty/index.html
NEW YORK (CNNMoney) -- Congress' official scorekeeper said Wednesday that roughly two million more Americans will pay penalties under President Obama's health care law for lacking insurance than had previously been estimated.

Under the law, Americans must be insured starting in 2014 or pay a penalty assessed on their tax returns.

Shortly after the legislation passed in 2010, the Congressional Budget Office, working alongside the Joint Committee on Taxation, estimated that in 2016 roughly four million people a year would opt to pay the penalty instead of getting coverage. On Wednesday, the CBO and JCT revised that figure up to six million, citing legislation passed since 2010 as well as the weaker economic outlook.

The groups also pointed to the Supreme Court's decision earlier this year to make the health care law's expansion of Medicaid optional for states.

Of those people who opt for the penalty, 10% are projected to be below the federal poverty level for 2016, which the CBO and JCT estimate will stand at about $12,000 for an individual or $24,600 for a family of four.

In 2014, the penalty will be no more than $285 per family, or 1% of income, whichever is greater. In 2015, the cap rises to $975, or 2% of income. And by 2016, it reaches $2,085 per family, or 2.5% of income, whichever is greater.

The dollar amounts for a single adult would be $95, $325 and $695 during that same time period.

Roughly 30 million non-elderly Americans are projected to remain uninsured in 2016, though most will not be subject to the penalty tax. For instance, the penalty will be waived for people with very low incomes who don't have to file tax returns, those who are members of certain religious groups, or people who face insurance premiums that would exceed 8% of family income even after including employer contributions and federal subsidies.

Penalty payments collected in 2016 are expected to total $7 billion, about $3 billion more than previously estimated.

Healthcare law's surtax could affect a few home sellers in 2013

http://www.latimes.com/business/realestate/la-fi-harney-20120715,0,7914992.story
By Kenneth R. Harney

The vast majority of people who sell their primary residences next year won't be affected by the 3.8% levy, which takes effect Jan. 1.

WASHINGTON — When the Supreme Court upheld the healthcare reform law on federal tax grounds, it re-stoked a housing issue that had been relatively quiet for the last year: The alleged 3.8% "real estate tax" on home sales beginning in 2013 that is buried in the legislation.

Immediately following enactment of the healthcare law, waves of emails hit the Internet with ominous messages aimed at homeowners. A sample: "Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it? When did this happen? It's in the healthcare bill. Just thought you should know."

Once litigation challenging the law's constitutionality surfaced in federal courts, the email warnings subsided. But with the law scheduled to take effect less than six months from now, questions are being raised again: Is there really a 3.8% transfer tax on real estate coming in 2013? Does it preempt the existing $250,000 and $500,000 capital gains exclusions for single-filing and joint-filing home sellers, as some emails have claimed?

In case you've heard rumors or received worrisome emails about any of this, here's a quick primer:

Yes, there is a new 3.8% surtax that takes effect Jan. 1 on certain investment income of upper-income individuals — including some of their real estate transactions. But it's not a transfer tax and not likely to affect the vast majority of homeowners who sell their primary residences next year.

In fact, unless you have an adjusted gross income of more than $200,000 as a single-filing taxpayer, or $250,000 for couples filing jointly ($125,000 if you're married filing singly), you probably won't be touched by the surtax at all, though you could be affected by other changes in the code if Congress doesn't extend the Bush tax cuts scheduled to expire at the end of this year.

Even if you do have income greater than these thresholds, you might not be hit with the 3.8% tax unless you have certain types of investment income targeted by the law, specifically dividends, interest, net capital gains and net rental income. If your income is solely "earned" — salary and other compensation derived from active participation in a business — you have nothing to worry about as far as the new surtax.

Where things can get a little complicated, however, is when you sell your home for a substantial profit, and your adjusted gross income for the year exceeds the $200,000 or $250,000 thresholds. The good news: The surtax does not interfere with the current tax-free exclusion on the first $500,000 (joint filers) or $250,000 (single filers) of gain you make on the sale of your principal home. Those exclusions have not changed. But any profits above those limits are subject to federal capital gains taxation and could also expose you to the new 3.8% surtax.

Julian Block, a tax attorney in Larchmont, N.Y., and author of "Julian Block's Home Seller's Guide to Tax Savings," says it will be more important than ever to pull together documentation on the capital improvements you made to the property and expenses connected with the house — including settlement or closing costs, such as title insurance and legal fees — that increase your tax "basis" in order to lower your capital gains.

Since the healthcare law targets capital gains, you could find yourself exposed to the 3.8% levy on the sale of your home next year.

Here's an example provided by the tax staff at the National Assn. of Realtors. Say you and your spouse have adjustable gross income (AGI) of $325,000 and you sell your home at a $525,000 profit. Assuming you qualify, $500,000 of that gain is wiped off the slate for tax purposes. The $25,000 additional gain qualifies as net investment income under the healthcare law, giving you a revised AGI of $350,000. Since the law imposes the 3.8% surtax on the lesser of either the amount your revised AGI exceeds the $250,000 threshold for joint filers ($100,000 in this case) or the amount of your taxable gain ($25,000), you end up owing a surtax of $950 ($25,000 times 0.038).

The 3.8% levy can be confusing and can bite deeper when your taxable capital gains are far larger or you sell a vacation home or a piece of rental real estate, where all the profits could subject you to the investment surtax. Talk to a tax professional for advice on your specific situation.

kenharney@earthlink.net

Distributed by Washington Post Writers Group.

Obama's 2011 tax returns

President Obama's 2011 tax returns:
http://www.docstoc.com/docs/118680676/Obama-Taxes

http://www.foxnews.com/politics/2012/04/13/president-obama-paid-lower-tax-rate-than-his-secretary/

Obama's stimulus plan: a flop for many small businesses

http://money.cnn.com/2011/09/20/smallbusiness/stimulus_plan_hiring/index.htm
By Catherine Clifford

NEW YORK (CNNMoney) -- The $447 billion stimulus plan that President Obama unveiled earlier this month won't change hiring plans for many small businesses, according to a survey released Tuesday.

Almost 70% of small businesses polled said that the plan, should it pass, would not spur them to add jobs, said Manta, a small business website.

Of the 1,648 businesses polled, only 11% of those businesses said they would hire if the jobs package becomes law. Another 13% said it depends on what version of the proposal is passed. Another 7% said they just weren't sure.

The American Jobs Act promises to cut the payroll tax businesses pay in half -- to 3.1% -- on the first $5 million in wages. Also, if a business hires a new worker or gives an existing worker a raise, all payroll taxes will be waived. The act would also extend a tax benefit allowing businesses to write off their expenses more quickly.

The president said it would also reduce regulatory burdens for small businesses looking to obtain capital. But it gave few details.

Dear Mr. President...

'Crisis of Confidence': "I have a crisis of confidence problem," said Chris Shirer, the CEO of Madison & Fifth, a 10-year-old digital marketing firm in Columbus, Ohio.

Shirer is giving raises and bonuses with any extra money she makes to her staff of four people. She would be eligible for some tax relief for the raises. "That is great, "she said. "But I was going to give those raises anyway."

The most pressing issue is access to capital. "I am not somebody who makes widgets," said Shirer. Manufacturing businesses have machines and equipment that they use to back loans. Shirer doesn't have heavy machinery or equipment for collateral. Still, she needs capital for hiring and marketing.

But her experience getting it from a bank has not been good. During the recession, her bank slashed her credit line and raised her interest rate. She attempted to apply for a loan through the Small Business Administration, but filling out the paperwork was so complicated that she gave up in frustration.

Two-thirds of small businesses "highly unsatisfied" with the government: "There is this weird dance going on between the government and the banks that is hogtying businesspeople," said Shirer.

She doesn't have much more confidence in the nation's political leaders. She gives the president's stimulus plan a 50% chance of being passed. "They are in a seemingly intractable battle with each other," said Shirer about the president and Congress. "I don't think these folks can talk to each other."

Shirer is not alone in her frustration with the government. Two-thirds (67%) of the 2,324 businesses that Manta polled at the end of August said they are "highly unsatisfied" with the government's effectiveness. By contrast, only 2% of the respondents were "highly satisfied."

Hiring: Yes. No. Maybe so.

When asked which political party best supports small business, more than one-third of respondents (35%) answered "none."

A boon for some: Despite widespread dissatisfaction with the proposed legislation, the tax credit would encourage some small businesses to hire.

"We would add probably one to two extra employees with the tax incentives," said Jim Janosik, the owner of GoGreenPrinting.Biz, an environmentally friendly printing company, in Columbus, Ohio.

He has been thinking off adding to his staff of three. If the jobs bill were passed, "it would drive us to do it sooner, rather than later," he said.

Janosik was mostly pleased with the president's proposal and expects it to pass. "There is more good than bad in this proposal," he said. "I do have faith that it will pass, but it won't be his exact plan."
__________

Watch this CBS interview with Dave Ramsey on Obama's job act and small businesses, http://www.cbsnews.com/video/watch/?id=7381703n

Are rich taxed less than secretaries?

http://news.yahoo.com/fact-check-rich-taxed-less-secretaries-070642868.html
By STEPHEN OHLEMACHER - Associated Press

WASHINGTON (AP) — President Barack Obama makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries.

"Middle-class families shouldn't pay higher taxes than millionaires and billionaires," Obama said Monday. "That's pretty straightforward. It's hard to argue against that."

The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.

There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. That, however, was less than 1 percent of the nearly 237,000 returns with incomes above $1 million.

In his White House address Monday, Obama called on Congress to increase taxes by $1.5 trillion as part of a 10-year deficit reduction package totaling more than $3 trillion. He proposed that Congress overhaul the tax code and impose what he called the "Buffett rule," named for billionaire investor Warren Buffett.

The rule says, "People making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay."

"Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it," Obama said. "It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million."

Buffett wrote in a recent piece for The New York Times that the tax rate he paid last year was lower than that paid by any of the other 20 people in his office.

This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.

Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.

Lower-income households will pay less. For example, households making between $40,000 and $50,000 will pay an average of 12.5 percent of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7 percent.

The latest IRS figures are a few years older — and limited to federal income taxes — but show much the same thing. In 2009, taxpayers who made $1 million or more paid on average 24.4 percent of their income in federal income taxes, according to the IRS.

Those making $100,000 to $125,000 paid on average 9.9 percent in federal income taxes. Those making $50,000 to $60,000 paid an average of 6.3 percent.

Obama's claim hinges on the fact that, for high-income families and individuals, investment income is often taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent. The top marginal tax rate for wages is 35 percent, though that is reserved for taxable income above $379,150.

With tax rates that high, why do so many people pay at lower rates? Because the tax code is riddled with more than $1 trillion in deductions, exemptions and credits, and they benefit people at every income level, according to data from the nonpartisan Joint Committee on Taxation, Congress' official scorekeeper on revenue issues.

The Tax Policy Center estimates that 46 percent of households, mostly low- and medium-income households, will pay no federal income taxes this year. Most, however, will pay other taxes, including Social Security payroll taxes.

"People who are doing quite well and worry about low-income people not paying any taxes bemoan the fact that they get so many tax breaks that they are zeroed out," said Roberton Williams, a senior fellow at the Tax Policy Center. "People at the bottom of the distribution say, but all of those rich guys are getting bigger tax breaks than we're getting, which is also the case."

Treasury Secretary Timothy Geithner was pressed at a White House briefing on the number of millionaires who pay taxes at a lower rate than middle-income families. He demurred, saying that people who make most of their money in wages pay taxes at a higher rate, while those who get most of their income from investments pay at lower rates.

"So it really depends on what is your profession, where's the source of your income, what's the specific circumstances you face, and the averages won't really capture that," Geithner said.

Tax the rich: How Obama will pay for his stimulus package

http://money.cnn.com/2011/09/12/news/economy/stimulus_package/index.htm
By Jeanne Sahadi @CNNMoney

NEW YORK (CNNMoney) -- President Obama proposed Monday to pay for his $447 billion stimulus package largely by taxing the rich more.

Obama's largest proposed pay-for -- which the White House estimates would raise roughly $400 billion over 10 years -- would limit itemized deductions and certain other exemptions for individuals with adjusted gross incomes of $200,000 or more ($250,000 and up for married couples).

The tax measure would go into effect on Jan. 1, 2013, when the White House assumes the top two income tax rates would revert to 36% and 39.6%, up from the current 33% and 35% as a result of the Bush-era tax cuts.

Obama's proposal would cap itemized deductions at 28%. That would mean for every $100 in deductions the rich claim in 2013, they would be able to reduce their tax bill by only $28. That would be less than the $36 or $39.60 they would get if they are in the top two tax brackets.

Relative to other federal tax filers, high-income households benefit disproportionately from itemized deductions -- including those for mortgage interest and charitable contributions.

What's in Obama's stimulus package

Obama's plan is similar to one he offered in each of his three budgets. But the proposal has gone nowhere in Congress.

The president put forth other repeat proposals on Monday to pay for the stimulus package.

So-called carried interest -- a portion of the money paid to managers of hedge funds and other investments partnerships -- would be taxed as ordinary income under Obama. Translation: It would be subject to rates as high as 39.6%, up from the current preferential rate of 15%. The White House estimates this change could raise $18 billion over 10 years.

Obama also wants to repeal various oil subsidies for an estimated savings of $40 billion. And he would impose a less-generous depreciation rule for the purchase of corporate jets. That measure would raise an estimated $3 billion.

All told, the pay-for proposals would raise roughly $467 billion, White House budget director Jacob Lew told reporters.

Lew noted that the White House measures "intentionally overachieve" on savings to compensate for likely differences in estimates that will be made by the Congressional Budget Office, which is the official cost-and-savings arbiter for Congress.

"We've built in a cushion for the differences that happen," Lew said.

The president's pay-for proposals will likely meet with stiff opposition from Republicans. Many GOP lawmakers don't want to raise taxes on anyone and aren't keen on the president's jobs plan to begin with, even though it contains more than $200 billion in tax cuts.

And at a time when Congress' debt super committee is working to cut deficits by at least $1.2 trillion over 10 years, Obama's pay-for plan would reduce the committee's revenue-raising options.

On the other hand, many career deficit hawks support measures to spur the economy now, so long as they are paid for eventually and paired with a long-term debt reduction plan.

For more, read this AP story at http://news.yahoo.com/obama-hike-taxes-pay-jobs-bill-200510620.html

Congress Sends Tax Cut Extension Bill to President

Late on Thursday, after some procedural delays, the House of Representatives agreed to the Senate's version of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, HR 4853, and by a vote of 277 to 148 sent it to President Barack Obama for his signature. The bill is the result of a deal negotiated by the White House and members of Congress, and the president is expected to sign it today.

EGTRRA Tax Cuts Extended for Two Years
Under current law, the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16), other than those made permanent or extended by subsequent legislation, sunset and won't apply to tax or limitation years beginning after 2010. (Sec. 901 of EGTRRA)

The 2010 Tax Relief Act postpones the Sec. 901 EGTRRA sunset rule for two years. That is, under the 2010 Tax Relief Act, the income tax provisions of EGTRRA, other than those made permanent or extended by subsequent legislation, will sunset and will not apply to tax or limitation years beginning after 2012 (instead of 2010). Thus, all of the following favorable tax rules (among others) will remain in place through 2012.

Tax rates. The income tax rates for individuals will stay at 10%, 15%, 25%, 28%, 33% and 35% (instead of moving to 15%, 28%, 31%, 36% and 39.6%). Additionally, the size of the 15% tax bracket for joint filers and qualified surviving spouses will remain at 200% (instead of dropping to 167%) of the 15% tax bracket for individual filers.

According to the Joint Committee on Taxation Explanation of the 2010 Tax Relief Act, the tax rate schedules for 2011, as adjusted for inflation, will be as follows:

FOR MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES, THE 2011 RATE BRACKETS WILL BE:

If taxable income is: -- The tax will be:

Not over $17,000 -- 10% of taxable income
Over $17,000 but not over $69,000 -- $1,700.00 plus 15% of the excess over $17,000
Over $69,000 but not over $139,350 -- $9,500.00 plus 25% of the excess over $69,000
Over $139,350 but not over $212,300 -- $27,087.50 plus 28% of the excess over $139,350
Over $212,300 but not over $379,150 -- $47,513.50 plus 33% of the excess over $212,300
Over $379,150 -- $102,574.00 plus 35% of the excess over $379,150

FOR SINGLE INDIVIDUALS (OTHER THAN HEADS OF HOUSEHOLDS AND SURVIVING SPOUSES), THE 2011 RATE BRACKETS WILL BE:

If taxable income is: -- The tax will be:

Not over $8,500 -- 10% of taxable income
Over $8,500 but not over $34,500 -- $850.00 plus 15% of the excess over $8,500
Over $34,500 but not over $83,600 -- $4,750.00 plus 25% of the excess over $34,500
Over $83,600 but not over $174,400 -- $17,025.00 plus 28% of the excess over $83,600
Over $174,400 but not over $379,150 -- $42,449.00 plus 33% of the excess over $174,400
Over $379,150 -- $110,016.50 plus 35% of the excess over $379,150

FOR HEADS OF HOUSEHOLDS, THE 2011 RATE BRACKETS WILL BE:

If taxable income is: -- The tax will be:

Not over $12,150 -- 10% of taxable income
Over $12,150 but not over $46,250 -- $1,215.00 plus 15% of the excess over $12,150
Over $46,250 but not over $119,400 -- $6,330.00 plus 25% of the excess over $46,250
Over $119,400 but not over $193,350 -- $24,617.50 plus 28% of the excess over $119,400
Over $193,350 but not over $379,150 -- $45,323.50 plus 33% of the excess over $193,350
Over $379,150 -- $106,637.50 plus 35% of the excess over $379,150

FOR MARRIEDS FILING SEPARATE RETURNS, THE 2011 RATE BRACKETS WILL BE:

If taxable income is: -- The tax will be:

Not over $8,500 -- 10% of taxable income
Over $8,500 but not over $34,500 -- $850.50 plus 15% of the excess over $8,500
Over $34,500 but not over $69,675 -- $4,750.00 plus 25% of the excess over $34,500
Over $69,675 but not over $106,150 -- $13,543.75 plus 28% of the excess over $69,675
Over $106,150 but not over $189,575 -- $23,756.75 plus 33% of the excess over $106,150
Over $189,575 -- $51,287.00 plus 35% of the excess over $189,575

Standard deduction for marrieds. EGTRRA increased the basic standard deduction for a married couple filing a joint return to twice the basic standard deduction for an unmarried individual filing a single return.

If the EGTRRA sunset kicked in, the standard deduction for married taxpayers filing jointly (and qualified surviving spouses) would drop to 167% of the standard deduction for single taxpayers, and the standard deduction for married taxpayers filing separately would continue to be one-half of the standard deduction for joint filers.

Under the Senate passed 2010 Tax Reform Act, the standard deduction for married taxpayers filing jointly (and qualified surviving spouses) remains at 200% (rather than 167%) of the standard deduction for single taxpayers for 2011. (The standard deduction for marrieds filing separately is half of the joint filer amount.)

The standard deduction will be $11,600 (up from $11,400 for 2010); for marrieds filing separately, it will be $5,800 (up from $5,700 for 2010).

Pease and PEP limitations won't apply. For 2011 and 2012:

• Itemized deductions of higher-income taxpayers will not be reduced (under the EGTRRA sunset rule for the "Pease limitation," after 2010 they would have been reduced by 3% of AGI above an inflation-adjusted figure, but the reduction couldn't exceed 80%).
• A higher-income taxpayer's personal exemptions will not be phased out when AGI exceeds an inflation-adjusted threshold (under the EGTRRA sunset rule for the "Pease limitation," after 2010 they would have been phased out).

For Current law's rules for the following tax provisions also will remain in place through 2012:

• 2011 the personal exemption amount will be $3,700 (up from $3,650 for 2010).
• Coverdell Education Saving Accounts (CESAs), formerly called education IRAs;
• exclusion for employer-provided educational assistance under Code Sec. 127 ;
• exemption from the payments-for-services rule for amounts received under certain Government health professions scholarship programs;
• above-the-line student loan interest deduction; credit for employer-provided child care facilities;
• adoption credit and adoption assistance programs exclusion, arbitrage rebate for school construction bonds, tax-exempt private activity bonds for qualified education facilities, American opportunity tax credit, extended earned income tax credit (EITC);
• tax relief for Alaska native settlement funds; credit for household and dependent care; and
• child tax credit.

JGTRRA Rules for Capital Gains and Qualified Dividends Extended for Two Years
The Senate passed 2010 Tax Reform Act defers for two years the sunset rule of Sec. 303 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA, PL 108-27). Thus, through Dec. 31, 2012, long-term capital gain (with the exception of 28% rate gain and unrecaptured section 1250 gain) will continue to be taxed at a maximum rate of 15%. If the JGTRRA sunset rule went into effect, long-term capital gain would face a tax of 20% (18% for assets held more than five years)). And before 2013, qualified dividends paid to individuals will be taxed at the same rates as long-term capital gains (instead of being taxed under the JGTRRA sunset rule at the same rates that apply to ordinary income).

Alternative Minimum Tax (AMT) "Patched" for Two Years
Under the Senate passed 2010 Tax Reform Act, the AMT exemption amounts for 2010 will be as follows:

• Married individuals filing jointly and surviving spouses: $72,450, less 25% of AMTI exceeding $150,000 (zero exemption when AMTI is $439,800);
• Unmarried individuals: $47,450, less 25% of AMTI exceeding $112,500 (zero exemption when AMTI is $302,300) (different amount applies for a child subject to the kiddie tax); and
• Married individuals filing separately: $36,225, less 25% of AMTI exceeding $75,000 (zero exemption when AMTI is $219,900). But AMTI is increased by the lesser of $36,225 or 25% of the excess of AMTI (without the exemption reduction) over $219,900.

Under the Senate passed 2010 Tax Reform Act, the AMT exemption amounts for 2011 will be as follows:

• Married individuals filing jointly and surviving spouses: $74,450, less 25% of AMTI exceeding $150,000 (zero exemption when AMTI is $447,800);
• Unmarried individuals: $48,450, less 25% of AMTI exceeding $112,500 (zero exemption when AMTI is $306,300) (different amount applies for a child subject to the kiddie tax); and
• Married individuals filing separately: $37,225, less 25% of AMTI exceeding $75,000 (zero exemption when AMTI is $223,900). But AMTI is increased by the lesser of $37,225 or 25% of the excess of AMTI (without the exemption reduction) over $223,900.

Without the "patch" in the Senate passed 2010 Tax Reform Act, post-2009 AMT exemption amounts would have plummeted to their pre-EGTRRA levels. For 2010, they would have been $45,000 for married individuals filing jointly and surviving spouses, $33,750 for unmarried individuals; and $22,500 for married individuals filing separately.

Also for 2010 and 2011, many nonrefundable personal credits will be allowed against the AMT (without the "patch," they couldn't offset AMT).

Estate Tax Relief
EGTRRA phased out the estate and generation-skipping transfer taxes so that they were fully repealed in 2010, lowered the gift tax rate to 35% and increased the gift tax exemption to $1 million for 2010. Under the EGTRRA sunset rule, the estate tax was set to return in 2011, with the top estate and gift tax rate reverting to 55%. For 2010, under EGTRRRA, the basis rules for inherited property were to be similar to the gift tax rules but with many opportunities for heirs to get increases in basis. Under the EGTRRA sunset rule, the pre-EGTRRA step-up in basis rules were to return for 2011.

The Senate passed 2010 Tax Relief Act:

• Lowers estate and GST taxes for 2011 and 2012 by increasing the exemption amount (technically, the applicable exclusion amount) from $1 million to $5 million (as indexed and rounded to the nearest multiple of $10,000 after 2011) and reducing the top rate from 55% to 35%.
• Allows estates of decedents dying in 2010 to choose between (1) estate tax (based on a $5 million exemption and 35% top rate) and a step-up in basis or (2) no estate tax and modified carryover basis. In technical terms, the Act achieves this choice by making the estate tax and basis changes effective retroactively for estates of decedents dying after 2009 but allowing the opt-out choice for estates of decedents dying in 2010.
• For gifts made after Dec. 31, 2010, reunifies the gift tax with the estate tax, with an applicable exclusion amount of $5 million and a top estate and gift tax rate of 35%.
• Provides that the GST tax exemption for decedents dying or gifts made after Dec. 31, 2009, is equal to the applicable exclusion amount for estate tax purposes (e.g., $5 million for 2010). Therefore, up to $5 million in GST tax exemption may be allocated to a trust created or funded during 2010. Although the GST tax is applicable in 2010, the GST tax rate for transfers made during 2010 is 0%. The GST tax rate for transfers made in 2011 and 2012 will be 35%.
• For a decedent dying after Dec. 31, 2009, and before the enactment date, provides that the due date for filing an estate tax return, making any payment of estate tax, and disclaiming an interest in property passing by reason of death is not to be earlier than the date that's nine months after the enactment date.
• Effective for estates of decedents dying after Dec. 31, 2010, allows the executor of a deceased spouse's estate to transfer any unused exemption to the surviving spouse.

Incentives for Businesses to Invest in Machinery and Equipment
The Senate passed 2010 Tax Relief Act OKs the following major new incentives for businesses to invest in machinery and equipment:

1. A 100% writeoff in the placed-in-service year of the cost of property eligible for bonus depreciation under Code Sec. 168(k) . This will apply for property acquired and placed in service after Sept. 8, 2010, and before Jan. 1, 2012;
2. A 50% bonus first-year depreciation allowance under Code Sec. 168(k) for property placed in service after Dec. 31, 2011, and before Jan. 1, 2013;
3. Extension through Dec. 31, 2012, of the election to accelerate the AMT credit instead of claiming additional first-year depreciation; and
4. For tax years beginning after Dec. 31, 2011, setting the maximum expensing amount under Code Sec. 179 at $125,000 and the investment-based phaseout amount at $500,000 (under current law, the expensing figures drop from $500,000/$2 million for 2010 and 2011 to$25,000/$200,000 after 2011). Also, off-the-shelf computer software will qualify for the Code Sec. 179 expensing election if placed in service in a tax year beginning before 2013.

Temporary Employee/Self-Employed Payroll Tax Cut for 2011
Under current law, employees pay a 6.2% Social Security tax on all wages earned up to $106,800 (in 2011) and self-employed individuals pay 12.4% Social Security self-employment taxes on all their self-employment income up to the same threshold. For 2011, the Senate passed 2010 Tax Reform Act gives a two-percentage-point payroll/self-employment tax holiday for employees and self-employeds. As a result, employees will pay only 4.2% Social Security tax on wages and self-employment individuals will pay only 10.4% Social Security self-employment taxes on self-employment income up to the threshold.

The maximum savings for 2011 will be $2,136 (2% of $106,800).

Host of Expired Business Tax Breaks Retroactively Reinstated and Extended Through 2011

The following business tax breaks that expired at the end of 2009 will be retroactively reinstated and extended through 2011:

• research credit;
• Indian employment tax credit;
• new markets tax credit;
• railroad track maintenance credit;
• mine rescue team training credit;
• employer wage credit for activated reservists;
• 15-year writeoff for qualifying leasehold improvements, restaurant buildings and improvements, and retail improvements;
• 7-year writeoff for motorsports entertainment facilities;
• accelerated depreciation for business property on an Indian reservation; enhanced charitable deductions for contributions of food inventory, for contributions of book inventories to public schools and for corporate contributions of computer equipment for educational purposes;
• election to expense mine safety equipment;
• special expensing rules for certain film and television products;
• expensing of environmental remediation costs;
• allowance of the Code Sec. 199 domestic production activities deduction for activities in Puerto Rico;
  
• modification of tax treatment of certain payments to controlling exempt organizations;
• treatment of certain dividends of regulated investment companies (RICs);
• RIC qualified investment entity treatment under FIRPTA;
• exceptions for active financing income;
• look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules;
• basis adjustment to stock of S corporations making charitable contributions of property;
• empowerment zone tax incentives;
• tax incentives for investment in the District of Columbia;
• temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands; and
• American Samoa economic development credit.

Other Business Tax Breaks Extended Through 2011
The following business tax breaks are extended through 2011:

• the work opportunity tax credit; and
• qualified zone academy bonds.

Long List of Tax Breaks for Individuals Retroactively Reinstated and Extended Through 2011
All of the following tax breaks for individuals that expired at the end of 2009 will be retroactively reinstated and extended through 2011:

• the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers;
• the election to take an itemized deduction for State and local general sales taxes in lieu of the itemized deduction permitted for State and local income taxes;
• increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes;
• the above-the-line deduction for qualified tuition and related expenses;
• the provision that permits taxpayers age 70 1/2 or older to make tax-free distributions to charity from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer, per tax year (additionally, individuals will be allowed to treat IRA transfers to charities during January of 2011 and as if made during 2010);
• look-thru of certain RIC stock in determining gross estate of nonresidents; and
• disregard of refunds in the administration of federal or federally assisted benefit programs.

Other Individual Tax Breaks Extended Through 2011
The following tax breaks for individuals that were set to expire at the end of 2010 will be extended through 2011:

• the increase in the monthly exclusion for employer-provided transit and vanpool benefits equal to that of the exclusion for employer-provided parking benefits (i.e., $230 per month);
• treatment of mortgage insurance premiums as deductible qualified residence interest; and
• exclusion of 100% of gain on certain small business stock.

Other Provisions Extended Through 2011
The list of energy-related provisions that will be extended through 2011 are:

• the $1.00 per gallon production tax credit for biodiesel, as well as the small agri-biodiesel producer credit of 10 cents per gallon;
• the $1.00 per gallon production tax credit for diesel fuel created from biomass;
• the placed-in-service deadline for qualifying refined coal facilities;
• the credit for manufacturers of energy-efficient residential homes;
• the $0.50 per gallon alternative fuel tax credit (but the credit will not be extended for any liquid fuel derived from a pulp or paper manufacturing process);
• deferral of gain on qualified electric utilities' sales or dispositions of electric transmission property;
• the suspension on the taxable income limit for purposes of depleting a marginal oil or gas well;
• grants for specified energy property in lieu of tax credits;
• the income tax credit for alcohol used as fuel;
• the reduced credit for ethanol blenders;
• the excise tax credit for alcohol used as fuel;
• the payment for alcohol fuel mixture;
• additional duties on imported ethanol;
• the energy efficient appliance credits (in new amounts and with new requirements);
• the Code Sec. 25C credit for energy-efficient improvements to existing homes, but reinstating the credit as it existed before passage of the American Recovery and Reinvestment Act (standards for property eligible under Code Sec. 25C are updated to reflect improvements in
• energy efficiency));
• the 30% investment tax credit for alternative vehicle refueling property.

The following disaster relief provisions will also be extended through 2011:

• the time for issuing New York Liberty Zone bonds, effective for bonds issued after Dec. 31, 2009;
• the increased rehabilitation credit for qualified expenditures in the Gulf Opportunity Zone (GO Zone);
• the placed-in-service deadline to claim additional low-income housing credits for buildings in GO Zones;
• tax-exempt bond financing; and
• the additional depreciation deduction claimed by businesses equal to 50% of the cost of new property investments made in the GO Zone (expenditures in 2011 will be eligible if the property is placed in service by Dec. 31, 2011).

http://www.journalofaccountancy.com/Web/20103669.htm

The House of Representatives on Thursday by a vote of 277–148 passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, HR 4853, which would postpone the sunset of the 2001 and 2003 tax cuts, reduce the estate tax, extend a large number of expired provisions, and extend unemployment benefits. The bill now goes to President Barack Obama for his signature, which is expected soon.

The House passed the Senate’s version of the bill without amendment. Prior to the vote on the bill, the House rejected, by a vote of 194–233, a motion that would have stricken the estate tax provisions in the bill and replaced them with an estate tax provision providing for a 45% rate and a $3.5 million exemption.

The bill has provisions covering the estate tax, expiring tax cuts, expired tax provisions and an alternative minimum tax (AMT) patch.

The bill postpones the scheduled sunset of the lower tax rates introduced in 2001 by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA, PL 107-16); those rates will now continue through 2012. The bill also continues the lower capital gains tax rate introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (PL 108-27) through 2012.

The EGTRRA’s repeal of the itemized deduction phaseout and the personal exemption phaseout are extended by the bill for two years.

For 2011 only, the bill reduces the rate for the Social Security portion of payroll taxes to 10.4%, by reducing the employee rate from 6.2% to 4.2% (the employer’s portion remains at 6.2%).

The bill includes an AMT patch for 2010 and 2011. For 2010, the AMT exemption amounts will be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. For 2011, the amounts will be $48,450 and $74,450, respectively.

The bill extends the 100% bonus depreciation for business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property). The bill also sets the expensing limitation under IRC § 179 at $125,000 and the phaseout threshold amount at $500,000 for 2012. The bill then reduces these amounts to $25,000 and $200,000 for tax years beginning after 2012.

The bill temporarily reinstates the estate tax, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011).

The bill also extends a large number of expired or expiring provisions, including:

• The increased standard deduction for married taxpayers filing jointly, scheduled to expire after 2010, would continue for two years;
• The $1,000 child tax credit amount would continue for two years, instead of reverting to $500;
• The increased starting and ending points for the earned income credit would continue for two years;
• The $3,000 amount for the child and dependent care credit, which is scheduled to revert to $2,400 after 2010, would continue for two years;
• The American opportunity tax credit would continue for two years;
• The temporary 100% exclusion of gain from the sale of certain small business stock under IRC § 1202, enacted by the Small Business Jobs Act of 2010, would be extended through 2011.

For more details of what is in the bill, see “Provisions in the Senate’s Tax Cut Extension Bill.”

Senate passed Obama-GOP tax deal

http://news.yahoo.com/s/ap/20101215/ap_on_bi_ge/us_tax_cuts

WASHINGTON – In a reach across party lines, the Senate overwhelmingly passed sweeping legislation Wednesday to prevent a Jan. 1 income tax increase for millions and to renew jobless benefits for the long-term unemployed.

A House vote is expected by Thursday.

Within moments of the 81-19 Senate vote, President Barack Obama urged the House to follow suit without making any changes — a slap at rebellious liberals working to stiffen the terms of an estate tax provision they characterize as a giveaway to millionaires and billionaires.

"I know there are different aspects of this plan to which members of Congress, on both sides of the aisle, object," Obama said. "That's the nature of compromise. But we worked hard to negotiate an agreement that's a win for middle-class families and a win for our economy. And we can't afford to let it fall victim to either delay or defeat."

At its core, the legislation provides a two-year extension of the tax cuts at all income levels that Congress approved while George W. Bush was president. Without action, they will expire on Dec. 31.

The bill also would cut 2011 Social Security taxes for all wage earners, a reduction that will mean an extra $1,000 in take home pay for an individual earning $50,000.

In addition, the legislation renews a program of jobless benefits for millions who were laid off more than six months ago. Officials said that without the bill, government checks will be cut off for two million Americans over the holidays, and millions more over the next year.

Energy tax provisions, including extension of a government subsidy for ethanol and breaks for producers of other alternatives to oil, were added in recent days to strengthen lawmakers' support for the measure.

The legislation amounted to the first fruits of a new era of divided government, a deal sealed little more than a week ago by Obama, who is nursing a fragile economic recovery midway through his term, and Republicans whose position was greatly strengthened in last month's elections.

Concessions made by the president sparked criticism from liberals who were angered at tax cuts for the wealthy that he had long criticized. Some provisions agreed to by Republican leaders brought objections from conservatives unhappy that the cost of the jobless benefits would swell the federal budget deficit.

And in the hours before final passage, lawmakers on both sides maneuvered for political gain, a sign of renewed struggle in 2011.

A Democratic attempt to ease the paperwork burden imposed by this year's big health care bill was blocked by Republicans. Democrats countered by vetoing a GOP alternative that would have included offsetting spending cuts.

In the end, though, the tax bill drew support from 44 Democrats and 37 Republicans, testament to the appeal of lower taxes and renewal of a program of aid for victims of the recession at a time of 9.8 percent unemployment. Fourteen Democrats and five Republicans voted against the bill.

Obama's call for the House to accept the Senate-passed measure continued a postelection season of contentiousness between the president and Democrats distressed that they lost their majority in November.

Democratic House leaders said they intended to have the bill debated and voted on by Thursday, but declined to say what their approach would be to the estate tax.

Their dilemma was evident — trying to keep faith with members of the rank and file who want to change the legislation, yet avoid at all costs having Democrats saddled with blame if taxes increase on Jan. 1.

That's what the Senate Republican leader, Sen. Mitch McConnell of Kentucky, warned might happen if the bill was changed.

"This agreement is not subject to being reopened," he said on Tuesday. "In other words, we have an understanding."

However, McConnell's insistence didn't extend to a series of Republican attempts to make modifications in the moments before Senate passage.

He and other Republicans sided with a failed attempt by Sen. Jim DeMint, R-S.C. to make the tax cuts permanent, and again when Sen. Tom Coburn, R-Okla., unsuccessfully proposed spending cuts to cover the cost of the unemployment benefits.

In the House, Obama's liberal critics were outspoken.

A closed-door meeting of the rank and file ended inconclusively Tuesday night, and afterward Rep. David Wu, accused the president of showing weakness in the face of an emboldened Republican Party.

"He has no street cred," the Oregon Democrat told reporters. "This tax bill is a thin part of the problem. They're going to get eaten alive by the Republicans in this chamber," he added, referring to White House officials.

By far the most controversial element of the bill concerned the estate tax. Under the measure, individual estates as large as $5 million would pass to heirs tax free — an amount that would reach $10 million for couples — with the balance taxed at a rate of 35 percent.

Under the Bush-era tax cuts, the estate tax was repealed for 2010, but scheduled to return on Jan. 1 with a top rate of 55 percent on the portion of estates above $1 million — $2 million for couples.

Unhappy with the more generous approach that Obama agreed to, House Democrats voted in a closed-door meeting last week they would not permit the legislation to reach the floor without changes.

They have since retreated from their ultimatum, and now hope they can change the measure on the floor to restore the tax to levels in effect in 2009. At the time, individuals could pass $3.5 million to their heirs, tax-free. Couples could pass $7 million, with a little tax planning, and the balance was taxed at a top rate of 45 percent.

For more coverage, click http://www.nytimes.com/2010/12/16/us/politics/16cong.html

Obama-GOP tax bill clears Senate hurdle with ease

http://thecaucus.blogs.nytimes.com/2010/12/13/senate-advances-tax-cut-package/
Shortly after 4:30 p.m., the vote tally was 69 to 10, with eight Democrats, one Republican, Senator John Ensign of Nevada, and one independent, Senator Bernard Sanders, of Vermont, in opposition.

The final tally was 83 to 15. Forty-five Democrats and 37 Republicans supported moving the measure ahead; opposing votes came from nine Democrats, five Republicans and one independent, Bernard Sanders of Vermont.

The tax package is likely to be brought to the floor in the House on Wednesday.

Here is a very good write up on the proposed extension by Ed Zollars, CPA:
http://ascpa.wordpress.com/2010/12/14/tax-relief-unemployment-insurance-reauthorization-and-jobs-creation-act-of-2010-3/

http://news.yahoo.com/s/ap/20101213/ap_on_bi_ge/us_tax_cuts
By DAVID ESPO, AP Special Correspondent David Espo, Ap Special Correspondent – 38 mins ago

WASHINGTON – Far-reaching legislation to avert a Jan. 1 income-tax increase for millions won overwhelming support in a Senate test vote on Monday, backed by an uneasy and unusual alliance between the White House and lawmakers in both parties.

Even before the vote was complete, President Barack Obama said the show of support "proves that both parties can in fact work together to grow our economy and look out for the American people."

Senate passage, expected within a day or two, would set up a final showdown in the House between Obama and liberals in his own party who want the White House to scale back the billions the bill includes in relief ticketed for the rich.

In his remarks, the president gave no indication he was willing to accept further changes to the measure he negotiated with senior Republicans.

"I understand those concerns," he said of the objections from some of his usual allies in Congress. "I share some of them. But that's the nature of compromise, sacrificing something that each of us cares about."

Despite strong criticism from fellow Democrats, Obama has made passage of the bill a key year-end priority, essential for the economy as it struggles to recover from the worst recession in decades.

In the Senate, Majority Leader Harry Reid, D-Nev., and his GOP counterpart, Mitch McConnell of Kentucky, were joint sponsors of the bill, a symbolic gesture of bipartisanship on an issue that produced nothing but gridlock until midterm elections gave Republicans additional leverage in negotiations.

"We're telling the American people to keep money that's rightfully theirs, so they can spend it and invest it as they please," said McConnell.

In a jab at Democrats, he added, "This is an important shift, and the White House should be applauded for agreeing to it."

Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee, said, "This bipartisan compromise is about creating jobs. Extending middle class tax cuts will help create jobs. ... Job creation needs to be our number one priority."

The bill needed 60 votes to clear a procedural hurdle. It achieved that level quickly in a long roll call, although no final tally was expected for hours.

The bill would provide a two-year reprieve in the tax increases scheduled to take effect on Jan. 1 at all income levels, reduce Social Security taxes for every wage earner in 2011 and extend an expiring program of jobless benefits for the long-term unemployed. The estimated cost, $858 billion over two years, would be added to already-huge federal deficits.

The measure represents a reach across party lines after two years of political combat in which Republicans wanted a permanent extension of all the tax cuts enacted when George W. Bush was president, while Democrats insisted rates be permitted to rise on incomes over $200,000 for individuals and $250,000 for couples.

Despite the bipartisanship in the Senate, disgruntled House Democrats have vowed to block a final vote unless the legislation is changed to scale back the tax relief for the nation's wealthiest.

"I think we're going to have a vote on the Senate bill, with possible changes," House Majority Leader Steny Hoyer, D-Md., said. "We may have it with amendments, we'll see what the process is."

The compromise emerged a week ago after private talks involving the White House and top leaders in Congress, including Republicans who emerged from midterm elections with significantly increased strength.

In the days since, Obama has drawn strong criticism from liberals unhappy that he agreed to changes in the estate tax and income tax that will benefit the rich. Firing back, he said failure to compromise would produce gridlock at a time the economy is still frail and unemployment is at a persistently high rate of 9.8 percent.

The administration's outgoing top economic adviser, Lawrence Summers, said in a speech a few hours before the vote that the agreement should increase consumer spending and help the economy "now and for the next several years."

On the other end of the political spectrum, some conservatives have spoken out against the bill, saying that the renewal of jobless benefits should be offset by spending cuts elsewhere in the budget.

In fact, even supporters of the bill were at pains to point out parts they found objectionable.

Baucus singled out the decision to leave tax rates unchanged on upper income earners.

Sen. John McCain, R-Ariz., highlighted a series of energy tax breaks added to the bill late last week, including an extension of the federal subsidy for ethanol.

McConnell cited "the Democrats' insistence that we borrow the money we need to pay for a further extension of unemployment insurance. In my view, if both parties agree that the debt is a serious problem, we shouldn't be writing checks that we don't have the money to cover."

Many House Democrats objected strongly to a change in the estate tax that Republicans won as part of the deal. The first $5 million of a couple's estate could pass to heirs without taxation, and an additional $5 million could be passed along for the spouse. The balance would be subject to a 35 percent tax rate.

The estate tax was repealed for 2010. But under current law, it is scheduled to return next year with a top rate of 55 percent on the portion above $1 million, $2 million for couples.

Provisions in the Senate's Tax Cut Extension Bill

Congress appears poised to approve tax-cut extension
HR 4853 has been introduced in the Senate and could be voted on as early as today. The bill encompasses the tax-cut deal negotiated by members of Congress and the White House last week. Among its many provisions, HR 4853 would continue the estate tax in its 2009 form, maintain tax rates at their current levels and extend a large number of expired or expiring tax preference items. In its extenders provisions, the bill goes well beyond what had been reported when the deal was negotiated, according to this article.

http://www.journalofaccountancy.com/Web/20103647.htm
Senate Majority Leader Harry Reid, D-Nev., introduced legislation late Thursday that would postpone the sunset of the 2001 and 2003 tax cuts, reduce the estate tax, and extend a number of expired provisions, as well as extending unemployment benefits. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Senate Amendment 4755 to HR 4853, incorporates elements of the deal struck by congressional and Obama administration negotiators on Dec. 6, but also incorporates many provisions that were not reported to be part of that deal.

The bill has provisions from four of the five tax areas that were considered to be important for Congress to address during its current “lame duck” session: the estate tax, expiring tax cuts, expired tax provisions, and an alternative minimum tax (AMT) patch. The bill as introduced does not address the expanded Form 1099 reporting requirements.

In 2001, when Congress enacted the Economic Growth and Tax Relief Reconciliation Act (EGTRRA, PL 107-16), it included a sunset provision, under which most EGTRRA changes would expire after 2010. This was designed to keep the costs of the bill small enough to ensure widespread support in Congress. HR 4853 would amend EGTRRA to postpone that sunset until after 2012.

Reid will reportedly seek to file a cloture motion on the bill on Monday. This would clear the way for a vote on the bill in the Senate. The bill’s prospects in the House of Representatives are unclear because on Dec. 9, House Democrats voted to oppose consideration of any tax bill based on the deal struck on Dec. 6.

Extension of EGTRRA Tax Cuts
The EGTRRA introduced a new 10% tax bracket for individuals and reduced the tax brackets above the 15% bracket to 25%, 28%, 33% and 35%. Those changes were scheduled to sunset after 2010, so that in 2011 the 10% rate would disappear (with income in that bracket reverting to the 15% bracket) and the other rates would revert to 28%, 31%, 36% and 39.6%, respectively. With the bill’s postponement of the EGTRRA sunset, those rates would continue through 2012.

The EGTRRA also lowered the capital gains tax rate to 15% (0% for taxpayers in the 10% and 15% tax brackets), which is also scheduled to expire after 2010. The bill’s postponement of the EGTRRA sunset would continue the lowered capital gains tax rate through 2012.

The EGTRRA’s repeal of the itemized deduction phaseout and the personal exemption phaseout also sunset in 2011, but would be extended by the bill for two years.

For 2011 only, the legislation would also reduce the rate for the Social Security portion of payroll taxes to 10.4%, by reducing the employee rate from 6.2% to 4.2% (the employer’s portion remains at 6.2%).

AMT Patch
The AMT exemption amount has been temporarily increased by legislative action several times in recent years. The most recent patch was for 2009; for 2010 the AMT exemption amount has reverted to its statutory amount: $45,000 for married individuals filing jointly, less 25% of alternative minimum taxable income exceeding $150,000; $33,750 for unmarried individuals, less 25% of alternative minimum taxable income exceeding $112,500.

The bill includes an AMT patch for 2010 and 2011. For 2010, the AMT exemption amounts would be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. For 2011, the amounts would be $48,450 and $74,450, respectively.

The bill would also extend through 2011 the ability to use nonrefundable personal credits to offset AMT (under IRC § 26(a)).

Bonus Depreciation and Section 179 Expensing
The bill would allow taxpayers to deduct 100% of the cost of business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property). The bill would also extend the election to accelerate AMT credits in lieu of bonus depreciation through 2012, although property manufactured, constructed or produced during 2010 would not be eligible for the election.

The bill would also set the expensing limitation under IRC § 179 at $125,000 and the phaseout threshold amount at $500,000 for 2012. The bill would then reduce these amounts to $25,000 and $200,000 for tax years beginning after 2012.

Estate Tax
The EGTRRA enacted a slow repeal of the estate and generation-skipping transfer (GST) taxes. Under the EGTRRA provisions, the estate and GST tax rates gradually declined until the estate and GST taxes were eliminated in 2010. Under the EGTRRA sunset provision, the estate tax repeal was to be in effect for 2010 only. After that, the estate and GST regime in place before the passage of the EGTRRA would spring back to life, as if the EGTRRA had never been enacted. This means that starting Jan. 1, 2011, the estate tax exemption would be $1 million (adjusted for inflation), the tax rate would be 55%, and the state death tax credit would be revived.

The EGTRRA also repealed the step-up in basis for assets passing at death. Instead, inherited assets are subject to a modified carryover basis rule in 2010. Under this rule, a recipient’s basis in property acquired from a decedent will be the lesser of the adjusted basis of the property at death or the fair market value (FMV) on the date of death. The carryover basis provision also sunset after Dec. 31, 2010.

HR 4853 would temporarily reinstate the estate tax at its 2009 levels, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011). For estates of decedents dying in 2010, an election will be available either to be subject to the reinstated estate tax or to be subject to the modified carryover basis rule. Estates of decedents dying in 2010 would be given an extension to file an estate tax return until nine months after the date of enactment of HR 4853.

The bill would also reinstate the generation-skipping transfer tax, and the due date for filing a return would be extended to nine months after the date of enactment of HR 4853. However, for generation-skipping transfers made during 2010, the tax rate will be zero.

The bill would also restore the unified credit against gift tax for gifts made after 2010.

Extension of Expired Provisions
A variety of temporary tax provisions, often referred to as “extenders,” expired at the end of 2009; more are scheduled to expire at the end of 2010. These expired provisions include tax credits, deductions and various tax incentives. The bill would extend many of these expired provisions, including:

• The increased standard deduction for married taxpayers filing jointly, scheduled to expire after 2010, would continue for two years;
• The $1,000 child tax credit amount would continue for two years, instead of reverting to $500;
• The increased starting and ending points for the earned income credit would continue for two years;
• The $3,000 amount for the child and dependent care credit, which is scheduled to revert to $2,400 after 2010, would continue for two years;
• The American opportunity tax credit would continue for two years;
• The temporary 100% exclusion of gain from the sale of certain small business stock under IRC § 1202, enacted by the Small Business Jobs Act of 2010, would be extended through 2011.

Tax Credits
The following temporary tax credits would also be extended through 2011 by the bill:

• IRC § 25C credit for nonbusiness energy property (which would also be returned to the limitations and standards applicable before amendment by the American Recovery and Reinvestment Act of 2009, PL 111-5);
• IRC § 30C alternative fuel vehicle refueling property credit;
• IRC § 40 credit for alcohol used as fuel;
• IRC § 40A credit for biodiesel and renewable diesel fuel;
• IRC § 41 research and development credit
• IRC § 45(d)(8) credit for refined coal facilities;
• IRC § 45A Indian employment tax credit;
• IRC § 45D new markets tax credit;
• IRC § 45G credit for certain railroad track expenditures;
• IRC § 45L new energy-efficient home credit;
• IRC § 45M energy-efficient appliance credit;
• IRC § 45N mine rescue team training credit;
• IRC § 45P employer wage credit for active duty members of the uniformed services;
• IRC § 51 work opportunity credit;
• IRC § 54E qualified zone academy bonds (but not the section 1397E credit for holders of qualified zone academy bonds, and the section 6431 refundable credit is repealed);
• IRC § 1400C credit for first-time D.C. homebuyers;
• IRC §§ 6426 and 6427 excise tax credits for alternative fuels; and
• American Samoa economic development credit under the Tax Relief and Health Care Act of 2006.

Deductions
The following expired and expiring temporary deductions would also be extended through 2011 by the bill:

• IRC § 62(a)(2)(D) deduction for elementary and secondary school teachers;
• IRC § 163(h)(3)(E) treatment of mortgage insurance premiums as interest;
• IRC § 164 state and local sales tax deduction;
• IRC § 168(e)(3)(E) 15-year straight-line cost recovery for qualified leasehold improvements and for qualified restaurant improvements;
• IRC § 168(i)(15)(D) seven-year cost recovery period for motor sports entertainment complexes;
• IRC § 168(j) accelerated depreciation for property on Indian reservations;
• IRC § 170(b)(1)(E) contributions of capital gain real property made for conservation purposes;
• IRC § 170(e)(3)(C) enhanced deduction for contributions of food inventory;
• IRC § 170(e)(3)(D) enhanced deduction for contributions of book inventory to public schools;
• IRC § 170(e)(6) enhanced deduction for corporate contributions of computer equipment for educational purposes;
• IRC § 179E(g) election to expense advanced mine safety equipment;
• IRC § 181(f) expensing treatment for certain film and television productions;
• IRC § 198(h) expensing of environmental remediation costs;
• IRC § 199(d)(8) deduction for income attributable to domestic production activities in Puerto Rico;
• IRC § 222 deduction for tuition and related expenses; and
• IRC § 1367(a)(2) basis adjustment to stock of S corporations making contributions to charity.

Other Extended Provisions
Other expired and expiring provisions that would be extended through 2011 by the bill include:

• IRC § 132 parity for exclusion from income for employer-provided mass transit passes and parking benefits;
• IRC § 168(n) expensing and special depreciation allowance for qualified disaster assistance property (extended through 2012);
• IRC § 408(d)(8) allowance for tax-free distributions from individual retirement plans for charitable purposes;
• IRC § 451 special rule for sales or dispositions to implement FERC or state electric restructuring policy for qualified electric utilities;
• IRC § 512(b)(13) special rules for certain amounts received by tax-exempt organizations from controlled entities;
• IRC § 613A(c) suspension of limitation on percentage depletion for oil and gas from marginal wells;
• IRC § 871(k) treatment of regulated investment company dividends and assets;
• IRC § 897(h) qualified investment entity treatment of regulated investment companies under the Foreign Investment in Real Property Tax Act of 1980;
• IRC §§ 953(e) and 954(h) exceptions for active financing income;
• IRC § 954(c) look-through treatment of payments between related controlled foreign corporations;
• IRC § 2105(d) look-through of certain regulated investment company stock in determining gross estate of nonresidents;
• IRC § 1367(a) basis adjustment to stock of S corporations making charitable contributions of property;
• IRC § 1391 empowerment zone incentives;
• IRC §§ 1400, 1400A and 1400B District of Columbia Enterprise Zone incentives;
• IRC § 1400L(b) New York Liberty Zone bonus depreciation;
• IRC § 1400N Gulf Opportunity Zone incentives; and
• IRC § 7652(f) “cover over” of tax on distilled spirits to Puerto Rico and the U.S. Virgin Islands;
• Grants under the American Recovery and Reinvestment Act of 2009 for specified energy property in lieu of tax credits.

Provisions Not Extended
A few expired provisions that were contained in earlier proposed extenders legislation but that do not appear in HR 4853 include:

• IRC § 30B credit for alternative motor vehicle credit for advanced lean burn technology motor vehicles, qualified hybrid motor vehicles, and qualified alternative fuel vehicles;
• IRC § 165(h) deduction for personal casualty losses in federally declared disasters;
• IRC § 172(j) carryback of net operating losses attributable to federally declared disasters; and
• IRC § 1400E renewal community tax incentives.

Refunds and Federal Assistance
Under the bill, any refund made to an individual would not be taken into account as income for purposes of determining eligibility for any federal assistance or assistance under a state or local program financed by federal funds (new IRC § 6409).

How the Tax Deal Could Affect Your Finances

http://online.wsj.com/article/SB10001424052748703518604576013942450422736.html
Edited by CRISTINA LOUROSA-RICARDO

President Obama called the bipartisan tax agreement announced last week a "framework." There's still no comprehensive outline of the proposals. And its passage by Congress isn't assured.

But the deal does address a range of tax issues that have been in question for months or years. Here's how the various provisions could affect taxpayers.

Individual tax rates: The Bush-era tax rates would be extended for two years for all taxpayers. Current rates would remain in place, with a top rate of 35%.

Capital gains: Current rates would be extended, and the top rate on long-term capital gains would remain at its historic low of 15% for two years.

Dividends: Current rates would be extended, and the top rate for qualified dividends -- those on most stocks held longer than two months -- would remain 15% for two years.

Payroll tax: The agreement calls for a two-percentage-point cut in an employee's portion of payroll (FICA) taxes, just for 2011. The change would make the tax 4.2%, instead of 6.2%, on the first $106,800 of wages per worker, according to the nonpartisan Tax Policy Center.

Alternative minimum tax: A two-year "patch," for 2010 and 2011, would keep the AMT exemption at or near current levels.

Extenders: The framework doesn't address several popular "extenders" that will expire this year or have already done so, but White House officials said they were included in the agreement for 2010 and 2011. Among them: transfers of IRA assets to charities by those over age 70 1/2; a state and local sales-tax deduction for itemizers; an additional standard deduction for real-estate taxes; and a deduction for teachers' expenses.

Unemployment insurance: Federal benefits would be extended at their current level for 13 months, through 2011.

Selected tax credits: The framework proposes to extend the $1,000 child credit and maintains its expanded refundabilty for working families for two years. It also would expand the Earned Income Tax Credit for larger families and married couples, and maintain both the higher-education tax credit and its partial refundabilty for the same period.

-- Laura Saunders
The Wall Street Journal

Spending Payroll Windfall

Working taxpayers will get a little, temporary raise, if the payroll-tax reduction in the tax agreement goes into effect. It isn't life-changing money -- the benefit tops out at $2,100 per year for anyone making $106,800 or more -- but it's enough to have a ripple effect if used wisely.

Legislators, of course, are hoping you'll do what Americans usually do with extra cash: buy things, patriotically heating up the economy. In fact, studies show that structuring a tax cut in precisely this way -- a little bit over a longer period of time, as opposed to a lump sum -- stimulates spending, not saving.

Will many people actually stash the cash? Probably not, says Ross Eisenbrey, vice president at the Economic Policy Institute, a think tank: "Most people are probably going to spend it."

But perhaps you'd do better to set your own agenda. Experts say there are ways to use the cash that will turn that 2% raise into a much bigger windfall. Here are three of them:

Juice retirement savings. Contribute that extra 2% to a 401(k) or individual retirement account. In this instance, you also would save on taxes since the added contribution to those plans would be pretax. Contributing the money to a Roth IRA would also be a small tax lottery because experts largely expect taxes to rise after 2012 -- making today's after-tax dollars (Roth contributions are made with after-tax dollars) "cheaper" than they will be in the future.

Create a health-care kitty. The cost of health care is expected to go up next year -- an expense most families haven't yet felt, or budgeted for, but one the payroll-tax cut could well cover.

Employees are projected to pay about 15% more next year for health-insurance deductibles and co-payments, with the average deductible about $675 for a single person and about $1,500 for a family with a preferred-provider insurance plan, according to the Kaiser Family Foundation.

Upgrade your appliances. As appliances get older, they get more expensive, says Scott Brown, owner of New Hampshire-based appliance-repair company Samurai Repair Man. They break and need repairs, and they get less efficient, which means higher energy bills.

-- AnnaMaria Andriotis
SmartMoney.com

Financial Literacy

Ever wonder how good the fellow residents of your state are at managing household finances? Find out on the website usfinancialcapability.org.

A small spoiler: New York, New Jersey and New Hampshire were among the top five states in at least three of five measures of financial capability, according to a survey of more than 28,000 people released last week.

Financial capability was measured based on these components: how many households spend more than their income; whether individuals had a "rainy day" fund to cover three months' worth of expenses in case of an emergency; how many individuals used nonbank borrowing methods in the past five years; how high individuals scored on five financial literacy questions; and how well individuals comparison-shopped, obtained credit reports and checked credit scores, and understood financial contracts.

The survey was funded by the FINRA Investor Education Program Foundation in consultation with the Treasury Department and the President's Advisory Council on Financial Literacy.

-- Maya Jackson Randall
Dow Jones Newswires

—The Aggregator features news and commentary from The Wall Street Journal and other publications. Email: cristina.lourosa@wsj.com