Congress Votes to Change the Way We Look at Taxes
Marriage Tax Penalty. There are bizarre rules in the Internal Revenue Code that make it possible for two people to earn the same income at the same job but pay vastly different income tax on that income due to their marital status. A repeal of this marriage tax quirk has passed with flying colors in both the House and Senate with a phase-in over a 10-year period. The joint conference committee has now combined features of the bills of both houses and has presented a final version of the bill to President Clinton. The final bill includes a retroactive change in the standard deduction for married couples making the amount equal to that of two single taxpayers, and a change in the tax brackets so that income of married taxpayers is taxed at the same rate as income of single taxpayers. The tax bracket change would phase in over 10 years. Clinton is expected to veto this bill, not because he favors the marriage tax penalty, but primarily because he is holding out for legislation that will add a prescription drug feature to the Medicare program. Congress wants to keep the bill focused on a single issue and therefore has refused to add the prescription drug plan to the marriage tax bill.
Retirement Plan Contributions. The House has passed a measure that will increase the amount of the allowable annual contribution to Individual Retirement Accounts from $2,000 to $5,000, and will increase the allowable annual contribution to 401(k) plans from $10,500 to $15,000. There is a 10-year phase-in period associated with this plan. Clinton may let this one ride, but it's still too early to tell. The bill goes to the Senate from here.
Estate Tax. The House and the Senate have voted to repeal the federal estate tax, but they are holding onto the bill for a while, hoping the dust will settle at the White House before submitting the bill in a final version for Clinton's signature. What's the chance of getting that signature? Not great. Once again, Clinton is pushing for the Medicare prescription plan as a rider to this bill before he will consider signing it, and Congress isn't yet prepared to give in on this issue. Another great bill may find its way to the dumpster.
W-2 Disclosure. The House passed a bill that will require employers to include on W-2 forms the Social Security and Medicare contributions that are made by employers on behalf of employees. Finally the American public might get a taste of what they are actually contributing to Social Security and Medicare. The bill is headed for the Senate.
If you're not yet a member of AccountingWEB and would like to register for additional news and resources, subscribe now !