Sunday, July 8, 2012
New York, Empire Zone Credits Denied
The Tax Appeals Tribunal (TAT) denied the petitions of the
taxpayer, failing to find a valid business purpose for the formation of an
entity seeking Empire Zone credits. The taxpayer, an owner of several home
furnishing related businesses, had reorganized certain portions of the
business, installing a holding company as the owner of a home furniture
retailing business and attempting to obtain Empire Zone enterprise credits
based on the establishment of the new entity. The Division of Taxation
determined, on audit, that the formation of the holding company lacked a valid
business purpose and the taxpayer was not entitled to Empire Zone Credits, a
finding which was upheld by the Administrative Law Judge. The TAT held that the
taxpayer's business was required, pursuant to N.Y. Tax Law § 14(j)(4)(B) and
N.Y. Tax Law § 208(o)(1)(D) , to have a valid business purpose and to not have
been formed solely to acquire Empire Zone benefits. As the record lacked any
contemporaneous evidence supporting the taxpayer's contention that the holding
company was established as part of a liability segregation plan and the
establishment of the holding company did not meaningfully change the economic
position of the taxpayer's business, the taxpayer failed the valid business
purpose test under N.Y. Tax Law § 208(o)(1)(D) and the new business test under
N.Y. Tax Law § 14(j)(4)(B) and therefore was ineligible to receive Empire Zone
credits. Furthermore, the TAT determined that the application of N.Y. Tax Law §
14 was not unconstitutionally retroactive, as it applied to the receipt of
prospective benefits and noted that entitlement to Empire Zone credits is not a
right, but a matter of legislative grace. (In the Matter of the Petition of
Dunk & Bright Furniture Co., Inc. and James F. Bright, N.Y.S. Tax Appeals
Tribunal, Nos. 823026, 06/28/2012).
Ohio Enacts Bill Exempting R&D Property for Aerospace Vehicles from Sales Tax
Ohio enacted legislation that, effective Sept. 10, creates
a sales tax exemption for property related to the research and development of
aerospace vehicles.
The legislation (H.B. 487) exempts from sales tax, sales of tangible personal property, including materials and other consumables, or services used or consumed in performing research and development activities with respect to aerospace vehicles.
Also exempted from tax are human performance equipment and technology associated with operating and testing aerospace vehicles. The legislation defines “aerospace vehicles” as any manned or unmanned aviation device including, but not limited to, aircraft, airplanes, helicopters, missiles, rockets, and space vehicles.
In addition, the legislation provides that telecommunications equipment used in direct marketing no longer needs to be purchased from a direct marketing vendor to be exempt from sales tax.
Dealers in intangibles are required to remit tax payments to the tax commissioner instead of the treasurer, and the commissioner, rather than the treasurer, must ascertain the difference in tax liability for an amended or final assessment that is certified.
Dealers in intangibles will no longer receive a certificate of abatement from the commissioner for a refund of overpaid taxes. Instead they must apply for a refund of overpaid taxes by filing an application for final assessment.
The legislation (H.B. 487) exempts from sales tax, sales of tangible personal property, including materials and other consumables, or services used or consumed in performing research and development activities with respect to aerospace vehicles.
Also exempted from tax are human performance equipment and technology associated with operating and testing aerospace vehicles. The legislation defines “aerospace vehicles” as any manned or unmanned aviation device including, but not limited to, aircraft, airplanes, helicopters, missiles, rockets, and space vehicles.
In addition, the legislation provides that telecommunications equipment used in direct marketing no longer needs to be purchased from a direct marketing vendor to be exempt from sales tax.
Dealers in intangibles are required to remit tax payments to the tax commissioner instead of the treasurer, and the commissioner, rather than the treasurer, must ascertain the difference in tax liability for an amended or final assessment that is certified.
Dealers in intangibles will no longer receive a certificate of abatement from the commissioner for a refund of overpaid taxes. Instead they must apply for a refund of overpaid taxes by filing an application for final assessment.
Energy Department Awards $14 Million for Energy Efficiency in 22 States
The Energy Department announced on June 27 that its State
Energy Program has awarded $14 million to state-led energy efficiency projects
in 22 states. The funds will allow the government agencies to conduct energy
efficiency upgrades to public facilities and develop local policies and
programs to help reduce energy waste and save taxpayer money. These investments
are part of the Energy Department’s strategy to create jobs, boost domestic
manufacturing in energy-saving technologies, and help Americans save money.
The state-led projects will conduct whole-building energy efficiency upgrades across hundreds of public buildings, saving millions of dollars for state and local governments and creating new local jobs for energy auditors, architects, engineers and construction workers. The states include Alabama, Alaska, Arizona, California, Hawaii, Illinois, Iowa, Kentucky, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Rhode Island, Virginia, Washington, and Wisconsin. The projects fall under two broad categories, including advancing energy efficiency in public buildings and deploying fee-based self-funded public facilities energy retrofit programs.
The state-led projects will conduct whole-building energy efficiency upgrades across hundreds of public buildings, saving millions of dollars for state and local governments and creating new local jobs for energy auditors, architects, engineers and construction workers. The states include Alabama, Alaska, Arizona, California, Hawaii, Illinois, Iowa, Kentucky, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Rhode Island, Virginia, Washington, and Wisconsin. The projects fall under two broad categories, including advancing energy efficiency in public buildings and deploying fee-based self-funded public facilities energy retrofit programs.
Obama Administration Announces Investments in Biofuels
The Energy Department, the U.S. Department of Agriculture
(USDA), and the U.S. Navy on July 2 announced $30 million in federal funding to
match private investments in commercial-scale advanced drop-in biofuels.
Drop-in biofuels are fuels that can serve as direct replacements or supplements
to existing gasoline, diesel, and jet fuels, without any changes to existing
fuel distribution networks or engines—and have the potential to significantly
reduce U.S. reliance on oil imports. DOE is also offering a total of $32
million in new investments for earlier-stage research that will continue to
drive technological breakthroughs and additional cost reductions in the
industry.
In his Blueprint for a Secure Energy Future released in March 2011, President Obama set a goal of reducing oil imports by one-third by 2025, increasing energy efficiency, and speeding development of biofuels and other alternatives. As part of that effort, the blueprint directed the DOE, the Navy, and the USDA to collaborate to support commercialization of drop-in biofuel substitutes for diesel and jet fuel, which lead to the current Funding Opportunity Announcement (FOA). This FOA has a two-phased approach, with government and industry sharing in the cost. In Phase 1, applicants will submit a design package and comprehensive business plan for a commercial-scale biorefinery, identify and secure project sites, and take additional required steps spelled out in the announcement. Awardees selected to continue into Phase 2 will submit additional information for the construction or retrofit of a biorefinery.
In his Blueprint for a Secure Energy Future released in March 2011, President Obama set a goal of reducing oil imports by one-third by 2025, increasing energy efficiency, and speeding development of biofuels and other alternatives. As part of that effort, the blueprint directed the DOE, the Navy, and the USDA to collaborate to support commercialization of drop-in biofuel substitutes for diesel and jet fuel, which lead to the current Funding Opportunity Announcement (FOA). This FOA has a two-phased approach, with government and industry sharing in the cost. In Phase 1, applicants will submit a design package and comprehensive business plan for a commercial-scale biorefinery, identify and secure project sites, and take additional required steps spelled out in the announcement. Awardees selected to continue into Phase 2 will submit additional information for the construction or retrofit of a biorefinery.
Tax Law Changes Impacting Businesses, the Patient Protection and Affordable Care Act
Tax credits to certain small employers that provide
insurance. The new law provides small employers with a tax credit (i.e., a
dollar-for-dollar reduction in tax) for nonelective contributions to purchase
health insurance for their employees. The credit can offset an employer's
regular tax or its alternative minimum tax (AMT) liability.
Small business employers eligible for the credit. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost. The business must have no more than 25 full-time equivalent employees (“FTEs”), and the employees must have annual full-time equivalent wages that average no more than $50,000. However, the full amount of the credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of less than $25,000.
Years the credit is available. The credit is initially available for any tax year beginning in 2010, 2011, 2012, or 2013. Qualifying health insurance for claiming the credit for this first phase of the credit is health insurance coverage purchased from an insurance company licensed under state law. For tax years beginning after 2013, the credit is only available to an eligible small employer that purchases health insurance coverage for its employees through a state exchange and is only available for two years. The maximum two-year coverage period does not take into account any tax years beginning in years before 2014. Thus, an eligible small employer could potentially qualify for this credit for six tax years, four years under the first phase and two years under the second phase.
Calculating the amount of the credit. For tax years beginning in 2010, 2011, 2012, or 2013, the credit is generally 35% (50% for tax years beginning after 2013) of the employer's nonelective contributions toward the employees' health insurance premiums. The credit phases out as firm-size and average wages increase. Tax-exempt small businesses meeting these requirements are eligible for payroll tax credits of up to 25% for tax years beginning in 2010, 2011, 2012, or 2013 (35% in tax years beginning after 2013) of the employer's nonelective contributions toward the employees' health insurance premiums.
Special rules. The employer is entitled to an ordinary and necessary business expense deduction equal to the amount of the employer contribution minus the dollar amount of the credit. For example, if an eligible small employer pays 100% of the cost of its employees' health insurance coverage and the amount of the tax credit is 50% of that cost (i.e., in tax years beginning after 2013), the employer can claim a deduction for the other 50% of the premium cost.
Self-employed individuals, including partners and sole proprietors, 2% shareholders of an S corporation, and five percent owners of the employer are not treated as employees for purposes of this credit. Any employee with respect to a self-employed individual is not an employee of the employer for purposes of this credit if the employee is not performing services in the trade or business of the employer. Thus, the credit is not available for a domestic employee of a sole proprietor of a business. There is also a special rule to prevent sole proprietorships from receiving the credit for the owner and their family members. Thus, no credit is available for any contribution to the purchase of health insurance for these individuals and the individual is not taken into account in determining the number of full-time equivalent employees or average full-time equivalent wages.
Most small businesses exempted from penalties for not offering coverage to their employees. Although the new law imposes penalties on certain businesses for not providing coverage to their employees (so-called “pay or play”), most small businesses won't have to worry about this provision because employers with fewer than 50 employees aren't subject to the “pay or play” penalty. For businesses with at least 50 employees, the possible penalties vary depending on whether or not the employer offers health insurance to its employees. If it does not offer coverage and it has at least one full-time employee who receives a premium tax credit, the business will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. So, for example, an employer with 51 employees who doesn't offer health insurance to his employees will be subject to a penalty of $42,000 ($2,000 multiplied by 21). Employers with at least 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit (also allowed under the new law) will pay $3,000 for each employee receiving a premium credit (capped at the amount of the penalty that the employer would have been assessed for a failure to provide coverage, or $2,000 multiplied by the number of its full-time employees in excess of 30). These provisions take effect Jan. 1, 2014.
The “Cadillac tax” on high-cost health plans. The new law places an excise tax on high-cost employer-sponsored health coverage (often referred to as “Cadillac” health plans). This is a 40% excise tax on insurance companies, based on premiums that exceed certain amounts. The tax is not on employers themselves unless they are self-funded (this typically occurs at larger firms). However, it is expected that employers and workers will ultimately bear this tax in the form of higher premiums passed on by insurers.
Here are the specifics: The new tax, which applies for tax years beginning after Dec. 31, 2017, places a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan to the extent that the annual premium exceeds $10,200 for single coverage and $27,500 for family coverage. An additional threshold amount of $1,650 for single coverage and $3,450 for family coverage will apply for retired individuals age 55 and older and for plans that cover employees engaged in high risk professions. The tax will apply to self-insured plans and plans sold in the group market, but not to plans sold in the individual market (except for coverage eligible for the deduction for self-employed individuals). Stand-alone dental and vision plans will be disregarded in applying the tax. The dollar amount thresholds will be automatically increased if the inflation rate for group medical premiums between 2010 and 2018 is higher than the Congressional Budget Office (CBO) estimates in 2010. Employers with age and gender demographics that result in higher premiums can value the coverage provided to employees using the rates that would apply using a national risk pool. The excise tax will be levied at the insurer level. Employers will be required to aggregate the coverage subject to the limit and issue information returns for insurers indicating the amount subject to the excise tax.
Small business employers eligible for the credit. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost. The business must have no more than 25 full-time equivalent employees (“FTEs”), and the employees must have annual full-time equivalent wages that average no more than $50,000. However, the full amount of the credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of less than $25,000.
Years the credit is available. The credit is initially available for any tax year beginning in 2010, 2011, 2012, or 2013. Qualifying health insurance for claiming the credit for this first phase of the credit is health insurance coverage purchased from an insurance company licensed under state law. For tax years beginning after 2013, the credit is only available to an eligible small employer that purchases health insurance coverage for its employees through a state exchange and is only available for two years. The maximum two-year coverage period does not take into account any tax years beginning in years before 2014. Thus, an eligible small employer could potentially qualify for this credit for six tax years, four years under the first phase and two years under the second phase.
Calculating the amount of the credit. For tax years beginning in 2010, 2011, 2012, or 2013, the credit is generally 35% (50% for tax years beginning after 2013) of the employer's nonelective contributions toward the employees' health insurance premiums. The credit phases out as firm-size and average wages increase. Tax-exempt small businesses meeting these requirements are eligible for payroll tax credits of up to 25% for tax years beginning in 2010, 2011, 2012, or 2013 (35% in tax years beginning after 2013) of the employer's nonelective contributions toward the employees' health insurance premiums.
Special rules. The employer is entitled to an ordinary and necessary business expense deduction equal to the amount of the employer contribution minus the dollar amount of the credit. For example, if an eligible small employer pays 100% of the cost of its employees' health insurance coverage and the amount of the tax credit is 50% of that cost (i.e., in tax years beginning after 2013), the employer can claim a deduction for the other 50% of the premium cost.
Self-employed individuals, including partners and sole proprietors, 2% shareholders of an S corporation, and five percent owners of the employer are not treated as employees for purposes of this credit. Any employee with respect to a self-employed individual is not an employee of the employer for purposes of this credit if the employee is not performing services in the trade or business of the employer. Thus, the credit is not available for a domestic employee of a sole proprietor of a business. There is also a special rule to prevent sole proprietorships from receiving the credit for the owner and their family members. Thus, no credit is available for any contribution to the purchase of health insurance for these individuals and the individual is not taken into account in determining the number of full-time equivalent employees or average full-time equivalent wages.
Most small businesses exempted from penalties for not offering coverage to their employees. Although the new law imposes penalties on certain businesses for not providing coverage to their employees (so-called “pay or play”), most small businesses won't have to worry about this provision because employers with fewer than 50 employees aren't subject to the “pay or play” penalty. For businesses with at least 50 employees, the possible penalties vary depending on whether or not the employer offers health insurance to its employees. If it does not offer coverage and it has at least one full-time employee who receives a premium tax credit, the business will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. So, for example, an employer with 51 employees who doesn't offer health insurance to his employees will be subject to a penalty of $42,000 ($2,000 multiplied by 21). Employers with at least 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit (also allowed under the new law) will pay $3,000 for each employee receiving a premium credit (capped at the amount of the penalty that the employer would have been assessed for a failure to provide coverage, or $2,000 multiplied by the number of its full-time employees in excess of 30). These provisions take effect Jan. 1, 2014.
The “Cadillac tax” on high-cost health plans. The new law places an excise tax on high-cost employer-sponsored health coverage (often referred to as “Cadillac” health plans). This is a 40% excise tax on insurance companies, based on premiums that exceed certain amounts. The tax is not on employers themselves unless they are self-funded (this typically occurs at larger firms). However, it is expected that employers and workers will ultimately bear this tax in the form of higher premiums passed on by insurers.
Here are the specifics: The new tax, which applies for tax years beginning after Dec. 31, 2017, places a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan to the extent that the annual premium exceeds $10,200 for single coverage and $27,500 for family coverage. An additional threshold amount of $1,650 for single coverage and $3,450 for family coverage will apply for retired individuals age 55 and older and for plans that cover employees engaged in high risk professions. The tax will apply to self-insured plans and plans sold in the group market, but not to plans sold in the individual market (except for coverage eligible for the deduction for self-employed individuals). Stand-alone dental and vision plans will be disregarded in applying the tax. The dollar amount thresholds will be automatically increased if the inflation rate for group medical premiums between 2010 and 2018 is higher than the Congressional Budget Office (CBO) estimates in 2010. Employers with age and gender demographics that result in higher premiums can value the coverage provided to employees using the rates that would apply using a national risk pool. The excise tax will be levied at the insurer level. Employers will be required to aggregate the coverage subject to the limit and issue information returns for insurers indicating the amount subject to the excise tax.
Tax Law Changes Impacting Individuals, the Patient Protection and Affordable Care Act
Individual mandate. The new law contains an “individual
mandate”—a requirement that U.S. citizens and legal residents have qualifying
health coverage or be subject to a tax penalty. Under the new law, those
without qualifying health coverage will pay a tax penalty of the greater of:
(a) $695 per year, up to a maximum of three times that amount ($2,085) per
family, or (b) 2.5% of household income over the threshold amount of income
required for income tax return filing. The penalty will be phased in according
to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the
flat fee or 1.0% of taxable income in 2014, 2.0% of taxable income in 2015, and
2.5% of taxable income in 2016. Beginning after 2016, the penalty will be
increased annually by a cost-of-living adjustment. Exemptions will be granted
for financial hardship, religious objections, American Indians, those without
coverage for less than three months, aliens not lawfully present in the U.S.,
incarcerated individuals, those for whom the lowest cost plan option exceeds 8%
of household income, those with incomes below the tax filing threshold (in 2010
the threshold for taxpayers under age 65 is $9,350 for singles and $18,700 for
couples), and those residing outside of the U.S.
Premium assistance tax credits for purchasing health insurance. The centerpiece of the health care legislation is its provision of tax credits to low and middle income individuals and families for the purchase of health insurance. For tax years ending after 2013, the new law creates a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance through an Exchange. The premium assistance credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through an Exchange. Under the provision, an eligible individual enrolls in a plan offered through an Exchange and reports his or her income to the Exchange. Based on the information provided to the Exchange, the individual receives a premium assistance credit based on income and IRS pays the premium assistance credit amount directly to the insurance plan in which the individual is enrolled. The individual then pays to the plan in which he or she is enrolled the dollar difference between the premium assistance credit amount and the total premium charged for the plan. For employed individuals who purchase health insurance through an Exchange, the premium payments are made through payroll deductions.
The premium assistance credit will be available for individuals and families with incomes up to 400% of the federal poverty level ($43,320 for an individual or $88,200 for a family of four, using 2009 poverty level figures) that are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage. The credits will be available on a sliding scale basis. The amount of the credit will be based on the percentage of income the cost of premiums represents, rising from 2% of income for those at 100% of the federal poverty level for the family size involved to 9.5% of income for those at 400% of the federal poverty level for the family size involved.
Higher Medicare taxes on high-income taxpayers. High-income taxpayers will be hit with a double whammy: a tax increase on wages and a new levy on investments.
Higher Medicare payroll tax on wages. The Medicare payroll tax is the primary source of financing for Medicare's hospital insurance trust fund, which pays hospital bills for beneficiaries who are 65 and older or disabled. Under current law, wages are subject to a 2.9% Medicare payroll tax. Workers and employers pay 1.45% each. Self-employed people pay both halves of the tax (but are allowed to deduct half of this amount for income tax purposes). Unlike the payroll tax for Social Security, which applies to earnings up to an annual ceiling ($106,800 for 2010), the Medicare tax is levied on all of a worker's wages without limit.
Under the provisions of the new law, which take effect in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,0000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Employers will collect the extra 0.9% on wages exceeding $200,000 just as they would withhold Medicare taxes and remit them to the IRS. Companies won't be responsible for determining whether a worker's combined income with his or her spouse makes them subject to the tax. Instead, some employees will have to remit additional Medicare taxes when they file income tax returns, and some will get a tax credit for amounts overpaid. Self-employed persons will pay 3.8% on earnings over the threshold. Married couples with combined incomes approaching $250,000 will have to keep tabs on both spouses' pay to avoid an unexpected tax bill. It should also be noted that the $200,000/$250,000 thresholds are not indexed for inflation, so it is likely that more and more people will be subject to the higher taxes in coming years.
Medicare payroll tax extended to investments. Under current law, the Medicare payroll tax only applies to wages. Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income. A new 3.8% tax will be imposed on net investment income of single taxpayers with adjusted gross income (AGI) above $200,000 and joint filers with AGI over $250,000 (unindexed). Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is reduced by properly allocable deductions to such income. However, the new tax won't apply to income in tax-deferred retirement accounts such as 401(k) plans. Also, the new tax will apply only to income in excess of the $200,000/$250,000 thresholds. So if a couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new tax. Because the new tax on investment income won't take effect for three years, that leaves more time for Congress and IRS to tinker with it. So we can expect lots of refinements and “clarifications” between now and when the tax is actually rolled out in 2013.
Floor on medical expenses deduction raised from 7.5% of AGI to 10%. Under current law, taxpayers can take an itemized deduction for unreimbursed medical expenses for regular income tax purposes only to the extent that those expenses exceed 7.5% of the taxpayer's AGI. The new law raises the floor beneath itemized medical expense deductions from 7.5% of AGI to 10%, effective for tax years beginning after Dec. 31, 2012. The AGI floor for individuals age 65 and older (and their spouses) will remain unchanged at 7.5% through 2016.
Limit on reimbursement of over-the-counter medications from HRAs, HSAs, FSAs, and MSAs. The new law excludes the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through a health reimbursement account (HRA) or health flexible savings accounts (FSAs) and from being reimbursed on a tax-free basis through a health savings account (HSA) or Archer Medical Savings Account (MSA), effective for tax years beginning after Dec. 31, 2010.
Increased penalties on nonqualified distributions from HSAs and Archer MSAs. The new law increases the tax on distributions from an HSA or an Archer MSA that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs) of the disbursed amount, effective for distributions made after Dec. 31, 2010.
Health flexible spending arrangements (FSAs) are limited to $2,500. An FSA is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Under current law, there is no limit on the amount of contributions to an FSA. Under the new law, however, allowable contributions to health FSAs will capped at $2,500 per year, effective for tax years beginning after Dec. 31, 2012. The dollar amount will be indexed for inflation after 2013.
Dependent coverage in employer health plans. Effective on Mar. 23, 2010, the new law extends the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the tax year. This change is also intended to apply to the exclusion for employer-provided coverage under an accident or health plan for injuries or sickness for such a child. A parallel change is made for VEBAs and 401(h) accounts. Also, self-employed individuals are permitted to take a deduction for the health insurance costs of any child of the taxpayer who has not attained age 27 as of the end of the tax year.
Excise tax on indoor tanning services. The new law imposes a 10% excise tax on indoor tanning services. The tax, which will be paid by the individual on whom the tanning services are performed, but collected and remitted by the person receiving payment for the tanning services, will take effect July 1, 2010.
Liberalized adoption credit and adoption assistance rules. For tax years beginning after Dec. 31, 2009, the adoption tax credit is increased by $1,000, made refundable, and extended through 2011 The adoption assistance exclusion is also increased by $1,000.
Premium assistance tax credits for purchasing health insurance. The centerpiece of the health care legislation is its provision of tax credits to low and middle income individuals and families for the purchase of health insurance. For tax years ending after 2013, the new law creates a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance through an Exchange. The premium assistance credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through an Exchange. Under the provision, an eligible individual enrolls in a plan offered through an Exchange and reports his or her income to the Exchange. Based on the information provided to the Exchange, the individual receives a premium assistance credit based on income and IRS pays the premium assistance credit amount directly to the insurance plan in which the individual is enrolled. The individual then pays to the plan in which he or she is enrolled the dollar difference between the premium assistance credit amount and the total premium charged for the plan. For employed individuals who purchase health insurance through an Exchange, the premium payments are made through payroll deductions.
The premium assistance credit will be available for individuals and families with incomes up to 400% of the federal poverty level ($43,320 for an individual or $88,200 for a family of four, using 2009 poverty level figures) that are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage. The credits will be available on a sliding scale basis. The amount of the credit will be based on the percentage of income the cost of premiums represents, rising from 2% of income for those at 100% of the federal poverty level for the family size involved to 9.5% of income for those at 400% of the federal poverty level for the family size involved.
Higher Medicare taxes on high-income taxpayers. High-income taxpayers will be hit with a double whammy: a tax increase on wages and a new levy on investments.
Higher Medicare payroll tax on wages. The Medicare payroll tax is the primary source of financing for Medicare's hospital insurance trust fund, which pays hospital bills for beneficiaries who are 65 and older or disabled. Under current law, wages are subject to a 2.9% Medicare payroll tax. Workers and employers pay 1.45% each. Self-employed people pay both halves of the tax (but are allowed to deduct half of this amount for income tax purposes). Unlike the payroll tax for Social Security, which applies to earnings up to an annual ceiling ($106,800 for 2010), the Medicare tax is levied on all of a worker's wages without limit.
Under the provisions of the new law, which take effect in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,0000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Employers will collect the extra 0.9% on wages exceeding $200,000 just as they would withhold Medicare taxes and remit them to the IRS. Companies won't be responsible for determining whether a worker's combined income with his or her spouse makes them subject to the tax. Instead, some employees will have to remit additional Medicare taxes when they file income tax returns, and some will get a tax credit for amounts overpaid. Self-employed persons will pay 3.8% on earnings over the threshold. Married couples with combined incomes approaching $250,000 will have to keep tabs on both spouses' pay to avoid an unexpected tax bill. It should also be noted that the $200,000/$250,000 thresholds are not indexed for inflation, so it is likely that more and more people will be subject to the higher taxes in coming years.
Medicare payroll tax extended to investments. Under current law, the Medicare payroll tax only applies to wages. Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income. A new 3.8% tax will be imposed on net investment income of single taxpayers with adjusted gross income (AGI) above $200,000 and joint filers with AGI over $250,000 (unindexed). Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is reduced by properly allocable deductions to such income. However, the new tax won't apply to income in tax-deferred retirement accounts such as 401(k) plans. Also, the new tax will apply only to income in excess of the $200,000/$250,000 thresholds. So if a couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new tax. Because the new tax on investment income won't take effect for three years, that leaves more time for Congress and IRS to tinker with it. So we can expect lots of refinements and “clarifications” between now and when the tax is actually rolled out in 2013.
Floor on medical expenses deduction raised from 7.5% of AGI to 10%. Under current law, taxpayers can take an itemized deduction for unreimbursed medical expenses for regular income tax purposes only to the extent that those expenses exceed 7.5% of the taxpayer's AGI. The new law raises the floor beneath itemized medical expense deductions from 7.5% of AGI to 10%, effective for tax years beginning after Dec. 31, 2012. The AGI floor for individuals age 65 and older (and their spouses) will remain unchanged at 7.5% through 2016.
Limit on reimbursement of over-the-counter medications from HRAs, HSAs, FSAs, and MSAs. The new law excludes the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through a health reimbursement account (HRA) or health flexible savings accounts (FSAs) and from being reimbursed on a tax-free basis through a health savings account (HSA) or Archer Medical Savings Account (MSA), effective for tax years beginning after Dec. 31, 2010.
Increased penalties on nonqualified distributions from HSAs and Archer MSAs. The new law increases the tax on distributions from an HSA or an Archer MSA that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs) of the disbursed amount, effective for distributions made after Dec. 31, 2010.
Health flexible spending arrangements (FSAs) are limited to $2,500. An FSA is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Under current law, there is no limit on the amount of contributions to an FSA. Under the new law, however, allowable contributions to health FSAs will capped at $2,500 per year, effective for tax years beginning after Dec. 31, 2012. The dollar amount will be indexed for inflation after 2013.
Dependent coverage in employer health plans. Effective on Mar. 23, 2010, the new law extends the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the tax year. This change is also intended to apply to the exclusion for employer-provided coverage under an accident or health plan for injuries or sickness for such a child. A parallel change is made for VEBAs and 401(h) accounts. Also, self-employed individuals are permitted to take a deduction for the health insurance costs of any child of the taxpayer who has not attained age 27 as of the end of the tax year.
Excise tax on indoor tanning services. The new law imposes a 10% excise tax on indoor tanning services. The tax, which will be paid by the individual on whom the tanning services are performed, but collected and remitted by the person receiving payment for the tanning services, will take effect July 1, 2010.
Liberalized adoption credit and adoption assistance rules. For tax years beginning after Dec. 31, 2009, the adoption tax credit is increased by $1,000, made refundable, and extended through 2011 The adoption assistance exclusion is also increased by $1,000.
Wednesday, June 6, 2012
DOE to Launch an Energy Innovation Hub for Critical Materials Research
The Energy Department announced on May 31 its plans to
invest up to $120 million over five years in a new Energy Innovation Hub that
will identify problems and develop solutions across the lifecycle of critical
materials. Rare earth elements and other critical materials have unique
chemical and physical characteristics—including magnetic, catalytic, and
luminescent properties—that are important for a growing number of energy
technologies. These critical materials are also at risk for supply disruptions.
The new hub, funded by up to $20 million in Fiscal Year 2012, will carry out
research aimed both at having a reliable U.S. supply of rare earths and other
critical materials, as well as finding efficiencies and alternatives that
reduce the amount of critical materials that are needed. The work will aim to
advance U.S. leadership in energy-related manufacturing, including the
production of electric vehicles, wind turbines, efficient lights, and other
products.
Universities, national laboratories, nonprofit organizations, and private firms are eligible to compete and are encouraged to form partnerships when submitting their proposals. The award selection is expected this fall. This will be the fifth Energy Innovation Hub established by the Energy Department since 2010.
Universities, national laboratories, nonprofit organizations, and private firms are eligible to compete and are encouraged to form partnerships when submitting their proposals. The award selection is expected this fall. This will be the fifth Energy Innovation Hub established by the Energy Department since 2010.
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