The dog days of summer are ending and a hot tax season isn’t far behind. With Congress enacting six new tax laws in 2010, compared to only two in 2009, is it a wonder U.S. taxpayers are confused? Tax practitioners need to be ready to advise their clients on these tax law changes designed to stimulate the economy, improve access to healthcare, and incentivize consumer and business behavior. According to tax expert, Vern Hoven, here’s what’s hot:
- New Medicare tax: Interestingly, one of the hottest questions for the 2010 season is about the Medicare tax change that takes effect in 2013. The new 3.8 percent Medicare tax kicks in at an adjusted gross income of $250,000, and it applies to unearned income, which includes interest, dividends, royalties, annuities, rents, and most capital gains. Profit on the sale of a principal home above $250,000 for individuals or $500,000 for couples is also subject to the tax. Strategies to minimize the tax will include maximizing income from tax-exempt municipal bonds, Roth IRA and retirement plan distributions, and the sale of business property, while minimizing passive income and non-business capital gains.
- More tax breaks for families: Congress passed some tax relief measures especially for families in 2010. One change extended the adoption tax credit to more parents. Parents who adopt children this year may be entitled to the full adoption tax credit of $13,170. Those who owe less than $13,170 in federal tax won’t have to defer part of the credit to the following year. Those who owe no tax at all will also receive a check for the entire amount of the adoption credit. In another change that parents may not know about, Congress made deductible medical insurance premiums paid to qualified plans for adult children up to age 27. “The children do not have to be dependents—so that’s hot,” says Vern.
- Medical insurance for employees: The Patient Protection and Affordable Care Act (PPACA) gives a tax credit on a sliding scale to small businesses that provide health insurance to employees. Under certain circumstances, a company that pays half the cost of an employee health plan can get as much as 35 percent of it back. It is estimated that 4 million small businesses could qualify for a tax credit under PPACA.
- Tax incentives to hire: The federal government will reward businesses that hire the unemployed. The Hiring Incentives to Restore Employment (HIRE) Act exempts employers from paying their 6.2 percent share of the Social Security payroll tax on new-hires that meet specific criteria. Businesses may also get up to a $1,000 tax credit for every qualified new-hire that they retain for 52 consecutive weeks.