Health Care Reform Tax Changes
President Obama has signed the health care reform legislation into law and we are preparing a Tax Law Change Alert that will focus on the tax aspects of the legislation.
Health care is not the only topic of interest, please read below to learn about three other items we want you to be aware of.
FICA Tax and Severance Payments - What You Need to Know.
An employer who made severance payments to terminated employees, or terminated employees, who received severance payments, should consider filing a claim for a refund if FICA taxes were withheld and paid by the employer.
The Internal Revenue Service has no dispute with respect to severance payments under a plan that is conditioned on a terminated employee's eligibility for or receipt of state unemployment benefits. (See IRS Revenue Ruling 90-72.) Such plan is considered a supplemental unemployment benefit (SUB) plan and benefits paid under such plan are specifically excluded from being considered "wages" subject to taxes imposed under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA).
However, a recent district court decision, U. S. Quality Stores, Inc., et al., 2/23/10, concludes further. In affirming a bankruptcy court decision, it concludes that any payment to an employee pursuant to a plan under which payments are made to an employee because of the employee's involuntary separation from employment (whether or not temporary) resulting directly from a reduction in force, the discontinuance of a plant or operation, or other similar conditions are "supplemental unemployment compensation benefits" (if includible in gross income for purposes of the income tax) excludable from being considered "wages" subject to FICA or FUTA tax.
We recommend contacting your WISS & Company partner to learn more about this ruling and what it means to you.
HIRE Act Provides Valuable Tax Incentives to Businesses
The Hiring Incentives to Restore Employment (HIRE) act, signed into law March 18, provides tax incentives for hiring and retaining workers and purchasing equipment and many other business assets.
Payroll Tax Forgiveness
This essentially exempts qualified employers (generally employers other than government entities) from having to pay the 6.2% Social Security portion of Federal Insurance Contribution Act (FICA) taxes on certain new hires through the end of the year. To qualify, a worker must be hired after Feb. 3, 2010, and before Jan. 1, 2011, and must have been unemployed (defined as not having worked more than 40 hours) for the 60-day period ending on his or her start date.
Retention Credit
This credit applies to workers who qualify for payroll tax forgiveness if they are retained for 52 consecutive weeks. The tax savings per qualified retained worker are equal to the lesser of 6.2% of the wages paid to the worker in 2010 or $1,000.
We recommend contacting your WISS & Company partner to learn more about this provision and what it means to you.
Sec. 179 Expensing
The HIRE act extends the increase in the Section 179 limit for initial year expensing to $250,000 (from $134,000). The Sec. 179 expensing election allows a current deduction for newly acquired assets that otherwise would have to be depreciated over a number of years. The HIRE act also extends the increase in the threshold at which the expensing election begins to phase out to $800,000 (up from $530,000). The higher limits apply for calendar year 2010 or a business's fiscal year that begins in 2010. A business can claim the expensing election only to offset its net income, not to reduce net income below zero.
Other Provisions
The HIRE act includes additional provisions that may be of interest to you, such as:
- A new election to convert tax credit bonds to Build America Bonds,
- Extension of highway and transit programs through 2010,
- Strengthening of foreign account tax compliance, and
- Deferral of implementation of "worldwide allocation of interest" to 2020.
Various changes to estimated tax payment requirements for certain large corporations also were included in the act, but they don't go into effect until 2014 or later.
Many Rules Apply
These breaks might provide your business with valuable tax savings, but many rules apply to them. Please contact your WISS & Company partner for details before acting.
How the Temporary Extension Act of 2010 Affects the COBRA Premium Subsidy Rules
President Obama recently signed into law the "Temporary Extension Act of 2010" (the Act), which, among other provisions extends the COBRA continuation premium subsidy for one month and makes a number of other clarifying and substantive changes to it. Here's an overview of the major changes to the COBRA premium subsidy rules:
Extension of COBRA 65% subsidy. In 2009, Congress created a temporary 65% COBRA premium subsidy because workers couldn't afford to pay COBRA premiums on their own. If a company has a group health plan that is subject to the Federal COBRA continuation coverage requirements or to similar requirements under State law, and the company receives a 35% payment from someone eligible for the subsidy, it must make the remaining 65% premium payment. The company is then "paid back," either by offsetting its payroll tax deposits or claiming the subsidy as an overpayment at the end of the payroll quarter. Eligible individuals can receive this subsidy for up to 15 months. However, under pre-Act law, to qualify for premium assistance, a worker had to be involuntarily terminated between Sept. 1, 2008 and Feb. 28, 2010. That meant that if there had not been an extension, workers involuntarily terminated after Feb. 28 wouldn't have been eligible for the COBRA subsidy. The new law extends the deadline for one month, so that workers who are involuntarily terminated between Sept. 1, 2008 and Mar. 31, 2010 are eligible for up to 15 months of COBRA subsidies. There is another bill currently being considered by the Senate would extend the 65% COBRA premium subsidy to apply for involuntary terminations through the end of 2010.
New election for those terminated after a reduction in hours. The new law clarifies the treatment of COBRA continuation that results from reductions in hours followed by termination of employment. Under the new law, if an individual did not make a COBRA continuation coverage election when his or her hours were reduced (or made an election but then discontinued COBRA coverage), if the individual is then involuntarily terminated from employment, that will be treated as a qualifying event for COBRA continuation coverage purposes. The period of the individual's COBRA continuation coverage is determined as though the qualifying event were the reduction in hours of employment. However, affected individuals will not be required to make a payment for COBRA continuation coverage for the period between their reduction in hours of employment and their involuntary termination.
If you would like more details about the COBRA premium subsidy, please do not hesitate to call your WISS & Company LLP partner or email us at info@wiss.com.
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