SenneySays: January 2013

Tuesday, January 29, 2013

Fiscal Cliff Averted - Compromise Act Hurts Some - But Not that Much - Yet

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The New Year's Eve "fiscal cliff" deadline came and went. To avoid mandatory across-the-board budget cut scenario, the U.S. Senate and House of Representatives on January 1st adopted a compromise measure. With some modifications targeting only “wealthy” taxpayers, the compromise act permanently extended certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). The compromise act (ACT) permanently fixed the alternative minimum tax (AMT) problem and temporarily extended numerous other tax provisions that lapsed at midnight on December 31st or had already expired.

Noteworthy among the tax items not addressed by the Act was extension of the payroll tax “holiday” taxpayers had enjoyed in 2012. The temporary lower 4.2% rate which had applied to the employees’ portion of the Social Security payroll tax was not extended and reverted to 6.2%.

Summary of the Compromise Act
The Act included the following provisions:

For most taxpayers, income tax rates remain unchanged at the 2001/2003 levels.
Individuals earning more than $400,000 and couples earning more than $450,000 are subject to a higher 39.6% top marginal rate.
These same upper-income taxpayers face an increase in capital gains and qualified dividend tax rates from 15% to 20%.
Individuals earning more than $250,000 and couples earning more than $300,000 are subject to a phase-out on personal exemptions and itemized deductions.
The tax rate on large estates (estates valued over $5 million for individuals and $10 million for couples, indexed for inflation) rises from 35% to 40%, the estate and gift tax regimes remain unified, and spouses continue to have access to unused estate tax exemption amounts (so called portability).
The alternative minimum tax (AMT) is permanently adjusted for inflation, preventing more families from being subject to AMT.
401(k) and other defined contribution retirement plans are permitted to provide plan participants with expanded opportunity to convert pre-tax savings in such plans into Roth savings.
The IRA charitable rollover provisions are extended for 2012 and 2013 (with ability to use the provision for 2012 distributions).
Unemployment benefits are extended for one year.

However, many other issues, such as budget and entitlement cuts were not addressed however in the Act. If you have questions or comments concerning the fiscal cliff compromise Act, call or email me at 937-223-1130 or Jsenney@pselaw.com.

AND ONE MORE THING. Starting January 1, 2013, each person will pay a special Medicare tax ( in addition to his/her regular income tax) equal to 3.8% of the amount that certain items of net investment income cause the taxpayer(s) adjusted gross income to exceed $250,000 (for joint filers) or $200,000 (for non-married filers). In addition, starting January 1, 2013, each person will pay an additional 0.9% Medicare tax on wages and self-employment income in excess of various threshold amounts. The threshold amount for married individuals filing jointly is $250,000 ($125,000 if they file separate returns), and $200,000 for single individuals. Call or email me to discuss any questions you have concerning these extra taxes at 937-223-1130 or Jsenney@pselaw.com.

Friday, January 18, 2013

Guest Blogger Sarah Carter – Ohio BWC Workplace Wellness Program Grant

The Ohio Bureau of Workers’ Compensation (“BWC”) provides a grant to help employers develop a workplace wellness program with the goals of: (1) reducing the cost of workers' compensation claims; and (2) lowering health care costs for businesses by improving the health and wellness of the workforce.

To be eligible for this grant you must: (1) be a state-fund employer; (2) be current on funds owed to the BWC; (3) maintain active coverage; and (4) not already have a wellness program. The program consists of two components: (1) a health risk appraisal (“HRA”) with a biometric assessment that measures health risk factors; and (2) solutions designed to address the risk factors. If you have only one of these tools in place, then you do not have a full wellness program and are eligible to apply for the grant.

If you are approved for a grant, you will be required to contract with a third party wellness program vendor, comply with fund usage guidelines, and complete other conditions established by the BWC, such as data sharing. Your business may receive $300 per participating employee over a four-year period, up to a maximum amount of $15,000 per policy. The BWC defines a “participating employee” as someone who completes an HRA and biometric assessment in the first three months of the program and each of the following years of the program. Employees must also participate in at least one activity to enhance or maintain their health in each program year.

If you have any questions about these BWC grant programs, Sarah Carter can be reached at (937) 223-1130 or scarter@pselaw.com.

AND ONE MORE THING. The IRS has issued a reminder to taxpayers that, as a result of changes made by the American Taxpayer Relief Act of 2012, IRA owners who are age 70-1/2 and older have until Jan. 31, 2013, to make tax-free transfers to eligible charities and treat these transfers as if they were made on Dec. 31, 2012. Additionally, eligible IRA owners who received a distribution in December of 2012 can transfer any portion of that distribution to a charitable organization by Jan. 31, 2013, and treat it as made in 2012. Call or email Jeff Senney at 937-223-1130 or Jsenney@pselaw.com.

Sunday, January 13, 2013

Estate and Gift Tax Changes Enacted

On January 1, 2013, Congress passed the Taxpayer Relief Act of 2012. The President quickly signed it into law. Among other things, the 2012 Act made permanent some of the estate, gift and generation-skipping transfer tax provisions which had been set to expire after 2012. If you have not talked to your estate and gift planning attorney lately, now would be a good time to touch base and discuss how these recent changes affect your estate and succession plans.

Background on Transfer Tax Changes. Before enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) there was no gift tax and no estate tax on the first $675,000 of transfers during life or at death for gifts made and individuals dying in 2001. These two taxes were tied together under a unified system having a top rate of 55%. EGTRRA increased the exemption amount in stages after 2001. For individuals dying in 2006 through 2008, the exemption was $2 million. The exemption rose to $3.5 million for individuals dying in 2009. But under EGTRRA, the gift and estate exemptions were no longer unified, and the gift exemption remained at $1 million for all years after 2001. Under EGTRRA, the top estate and gift tax rate was reduced in stages. The top rate was 45% for transfers in 2007 through 2009. In 2010, there was to be no estate tax and the top gift tax rate was to be 35%.

All of the EGTRRA changes were set to expire at the end of 2010. If allowed to expire, the rates and rules were to revert to those that applied pre-EGTRRA. However, the 2010 Tax Relief Act provided temporary relief from the EGTRRA expiration. Among other changes, the 2010 Act reduced the maximum tax rates for 2011 and 2012, and continued other estate and gift tax relief provisions that would otherwise have expired after 2010. But absent enactment of the 2012 Act, the relief granted by EGTRRA and the 2010 Act would have expired, and the rates and rules in place pre-EGTRRA would have again applied.

Permanent Exemption Amount. The 2012 Taxpayer Relief Act permanently establishes the estate exemption amount at $5 million per person. The exemption amount is indexed to increase by an inflation factor. For 2012, the exemption amount as indexed increases to $5,120,000. The exemption is allowed in the form of a unified credit against tax.

Tax Rates Increased. The top estate and gift tax rate for gifts made and decedents dying in 2012 was 35%. The 2012 Taxpayer Relief Act changes the maximum rate to 40% for gifts made and decedents dying after 2012. Under the Act, transfers over $500,000 are taxed at 37%, transfers over $750,000 are taxed at 39% and transfers over $1,000,000 are taxed at 40%.

Gift Tax Changes. Under the 2010 Act, the exemption was $1 million and the gift tax rate was 35% for gifts made in 2010. For gifts made after 2010, the gift tax was unified with the estate tax, with an exemption amount of $5 million (indexed after 2011) and a top rate of 35%. The 2010 Act also made changes to how gift taxes are taken into account in computing estate and gift taxes. All of the temporary changes made under the 2010 Act have now been made permanent by the 2012 Taxpayer Relief Act, except that the 2012 Act changed the maximum gift tax rate to 40%.

Generation-Skipping Tax Changes. Under the 2012 Taxpayer Relief Act, for decedents dying and gifts made after 2012: the GST tax exemption is equal to the basic exclusion amount of $5 million ( indexed); the GST tax rate is 40%; and the technical modifications to the GST rules made by EGTRRA continue to apply.

Portability of Unused Exemption between Spouses. The 2010 Act authorized estates of decedents dying after 2010 and before 2013 to elect to transfer any unused exclusion to the surviving spouse. The amount received by the surviving spouse is called the deceased spousal unused exclusion (DSUE) amount. If the executor of the decedent's estate elects transfer of the DSUE amount, the surviving spouse can apply the DSUE amount received from the estate of his or her deceased spouse against tax liability arising from subsequent gifts and death transfers. The 2012 Taxpayer Relief Act made this portability provision permanent.

If you have any questions or comments about the 2012 Act estate and gift tax changes, please give our estate planning attorneys, John Clough, Jim Jacobson or Joe Mattera, a call at 937-223-1130, or shoot me an email at Jsenney@pselaw.com.

AND ONE MORE THING. The 2012 Taxpayer Relief Act also retains many favorable income tax breaks for businesses and individuals, and also adds a number of new provisions to the tax code. More about this will be coming out in a future blog. Call me at Jsenney@pselaw.com or 937-223-1130 if you have questions and can’t wait.

Tuesday, January 8, 2013

Ohio Incumbent Workforce Training Voucher Program

Ohio has recently announced details of the Ohio Incumbent Workforce Training Voucher Program. This program provides reimbursement of 50% of qualified employee training costs up to $4,000 per employee. This program is designed to provide financial assistance to help Ohio employers train their employees and improve their economic competitiveness.

The program is limited to $20 Million in reimbursements. Registration for participation in the Program opened on January 7th and is on a first come, first served basis. So it is important not to delay. You need to get your Application submitted as soon as possible.

Program Requirements:

In order for training costs to be eligible for reimbursement under the Program, the following requirements must be met:

1. Eligible Training Costs. Training will only be considered for the Program if the Application is submitted at least 30 days prior to the start date of the training. Training must start after you file your Application and must be completed by June 30, 2013. The training costs must relate to the employee’s current position or future advancement with the employer, but may be:

(a)    Classes, either non-credit or credit, at an accredited education institution;

(b)   Training that leads to an industry recognized certificate;

(c)    Training provided in conjunction with the purchase of a new piece of equipment;

(d)   Upgrade of computer skills;

(e)    Training for the ICD-10-CM/PCS diagnostics classification system (regardless of whether the employee works for a for-profit or non-profit employer);

(f)    Training from a national, regional, or state trade association that offers an independently certified training curriculum and testing; and Training for improved process efficiency (e.g. ISO-9000, Six Sigma or Lean Manufacturing).

2. Ineligible Training Costs. The following training costs are not eligible under the Program:

(a)    Continuing Education Units (CEUs) required for continued professional certification;

(b)   Soft Skills (e.g. diversity, ethics, HR law, management and leadership, sexual harassment, etc.);

(c)    Training which is reimbursed/required by other public agencies or departments (e.g. OSHA, Worker’s Compensation);

(d)   General Equivalency Diploma (GED);

(e)    Profit-oriented courses (e.g. sales, marketing research, and Dale Carnegie trainings);

(f)    Conference fees;

(g)   Wages of trainees while being trained; and

(h)   Travel costs.

3. Eligible Employers. The employer must be in one of the following industries:

Advanced Manufacturing
Aerospace and Aviation
Automotive
BioHealth
Corporate Headquarters
Energy
Financial Services
Food Processing
Information Technology and Services
Polymers and Chemicals

4. Eligible Employees. The employee is someone who is directly employed by the company at a facility located within Ohio and meets all of the following requirements:

(a)    Employed in any of the following business functions: production, back office operations, information technology, logistics, or research and development;

(b)   Earning an hourly wage of at least 150 percent of the federal minimum wage ($10.88 as of January 1, 2012) plus benefits;

(c)    An Ohio resident;

(d)   At least 18 years of age; and

(e)   Working at least 25 hours per week.

For more information or to complete an on-line Application, you can go to the Ohio Development Services website at: http://development.ohio.gov/bs/bs_wtvp.htm or contact Shannon Vanderpool, Business Services Coordinator at (614) 644-8560 or Shannon.Vanderpool@development.ohio.gov. Please call or contact me at Jsenney@pselaw.com or 937-223-1130 if you have any more questions or need assistance.

AND ONE MORE THING. The 2012 Taxpayer Relief Act will prevent many of the tax hikes that were scheduled to go into effect this year and retain many favorable tax breaks that were scheduled to expire, but will also increase income taxes for some high-income individuals and slightly increase transfer tax rates from 2012 levels. Further, the Act extends a host of expired and expiring tax breaks for businesses and individuals, and also adds a number of new provisions to the Code. More about this will be coming out in a future blog. Call me at Jsenney@pselaw.com or 937-223-1130 if you have questions and can’t wait.

Wednesday, January 2, 2013

Compromise Bill Avoids/Defers Fiscal Cliff

As you know by now, Congress approved a compromise bill intended to avoid the large tax increases and budget cuts that were otherwise scheduled to take effect in 2013. The bill raises taxes by about $600 billion over 10 years and delays for two months across-the-board cuts to the federal budget.

Income Tax
The bill extends the current income tax rates on incomes up to $400,000 for individuals, $450,000 for couples. Taxpayers with earnings above those amounts would be taxed at a rate of 39.6%, up from the current 35%. The bill also extends the current caps on itemized deductions and the phase-out of the personal exemption for individuals making more than $250,000 and couples earning more than $300,000.

Estate Tax
Under the bill, estates would be taxed at a top rate of 40%, with the first $5 million in value exempted for individual estates and $10 million exempted for family estates. In 2012, such estates were subject to a top rate of 35%.

Capital Gains and Dividends
Under the bill, the tax rate on capital gains and dividend income exceeding $400,000 for individuals and $450,000 for joint-filers would increase from 15% to 20%.

Alternative Minimum Tax
The bill permanently addresses the alternative minimum tax and indexes AMT for inflation. This change is expected to prevent 30 million middle and upper-middle income taxpayers from being subject to AMT.

Unemployment Benefits
The bill extends jobless benefits for the long-term unemployed for another year.

Medicare Reimbursements for DoctorsThe bill delays a 27% cut in Medicare reimbursements to doctors for one year.

Social Security Payroll Tax Cut
The bill eliminates the 2% payroll tax cut that was enacted two years ago, thereby restoring the payroll tax to 6.2%.

IRAs
401(k) and other defined contribution retirement plans could provide plan participants with a newly expanded opportunity to convert their pre-tax savings in plans into Roth savings. The IRA charitable rollover provision would be extended for 2012 and 2013 (with special ability to make use of the provision for 2012 distributions).

Other Changes
The bill extends for 5 years the child tax credit, earned income tax credit, and the $2,500 tax credit for college tuition. The bill also extends for 1 year accelerated "bonus" depreciation of business investments in new property and equipment, the tax credit for research and development costs and the tax credit for renewable energy.

Across-the-Board Cuts
The bill delays for two months across-the-board spending cuts worth an estimated $109 billion set to start striking the Pentagon and domestic agencies. Cost of $24 billion is divided between spending cuts and new revenues from rules changes on converting traditional individual retirement accounts into Roth IRAs.

AND ONE MORE THING. Don’t forget that that the recent compromise bill does not affect the 3.8% Medicare tax on “net investment income” that was imposed starting in 2013 by the 2010 Affordable Health Care Act. The tax is generally levied on nonbusiness income from interest, dividends, annuities, royalties, rents, and capital gains of taxpayers with adjusted gross income in excess of $250,000 (for joint filers) or $200,000 (for single filers). So in 2013, taxpayers with incomes over the income thresholds will be paying tax on capital gains and dividends at a combined rate of 23.8%.

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