Obama 2013 Proposed Budget Has Many Tax Changes That May Benefit Businesses

The payroll tax cut currently in place for January and February of this year would be extended for the rest of 2012.


Certain employers would be provided a tax credit for increases in wage expense, whether driven by new hires, increased wages, or both. The credit would be equal to 10% of the increase in the employer's 2012 eligible wages over the prior year. The maximum amount of the increase in eligible wages would be $5 million per employer, for a maximum credit of $500,000, to focus the benefit on small businesses.


Employers currently pay FUTA tax at a rate of 6.0% (beginning July 1, 2011) on the first $7,000 of covered wages paid annually to each employee. The rate for the first half of 2011 was 6.2%, including the 6% permanent tax rate and the 0.2% temporary surtax that expired on June 30, 2011. The net federal unemployment insurance tax on employers would permanently revert to 6.2%, effective for wages paid with respect to employment on or after Jan. 1, 2013. Also, under current law, employers in States that meet certain Federal requirements are allowed a credit against FUTA taxes of up to 5.4%, making the minimum net Federal rate 0.6%. States that become non-compliant are subject to a reduction in FUTA credit, causing employers to face a higher Federal UI tax. Effective on the enactment date, short-term relief would be provided, for example, the FUTA credit reduction for employers in borrowing States would be suspended in 2012 and 2013. Other changes would be made. For example, the FUTA wage base would be raised in 2015 to $15,000 per worker.


The 100% bonus first-year depreciation deduction that generally applies only for assets placed in service before 2012, would be extended through 2012.


Use of the last-in, first-out accounting method would be repealed, for tax years beginning after Dec. 31, 2013. Taxpayers required to change from the LIFO method also would be required to report their beginning-of-year inventory at its first-in, first-out (FIFO) value in the year of change, causing a one-time increase in taxable income that would be recognized ratably over 10 years.


For tax years beginning after Dec. 31, 2013, bar the use of the lower-of-cost-or market and subnormal goods methods of inventory accounting, which currently allow certain taxpayers to take cost-of-goods-sold deductions on certain merchandise before the merchandise is sold. Any resulting income inclusion would be recognized over a four-year period beginning with the change year.


An additional $5 billion of credits for investments in eligible property used in a qualifying advanced energy manufacturing project. Taxpayers would be able to apply for a credit with respect to part or all of their qualified investment. Applications for the additional credits would be made during the two-year period beginning on the date on which the additional authorization is enacted.


Replace the existing deduction for energy efficient commercial building property with a tax credit equal to the cost of property that is certified as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the interior lighting, heating, cooling, ventilation, and hot water systems of the building by 20% or more in comparison to a reference building which meets certain minimum requirements. The tax credit would be available for property placed in service during calendar year 2013.


Effective for bonds issued after the enactment date, make the Build America Bonds program permanent at a Federal subsidy level equal to 30% through 2013 and 28% of the coupon interest on the bonds thereafter. The 28% Federal subsidy level would be intended to be approximately revenue neutral relative to the estimated future Federal tax expenditure for tax-exempt bonds. The eligible uses for Build America Bonds also would be expanded.


Effective after 2013, require employers in business for at least two years that have more than ten employees to offer an automatic IRA option to employees, under which regular contributions would be made to an IRA on a payroll-deduction basis. If the employer sponsored a qualified retirement plan, SEP, or SIMPLE for its employees, it would not be required to provide an automatic IRA option for its employees.