W-2 Reporting of Health Coverage

The health care reform law included a new requirement that the cost of employer-sponsored health insurance coverage be reported on Form W-2. The new requirement was to take effect starting in 2011, but the IRS has made it optional for all employers for the 2011 Form W-2. And for eligible small employers, the new requirement will be optional through at least 2012.

California Use Tax Collection Efforts Increasing

Lately many consumers have been purchasing items online from out of state vendors either for convenience, better price, or for a break on paying the California sales tax.  However, California law requires these taxes be paid to the State.  Since 1935, residents of California are held responsible in paying for the use tax, which would equal the sales tax rate in the city in which they reside on anything purchased outside of the state. If the retailer is not required to collect and report the use tax, it is the buyers responsibility to directly pay the tax.  Under federal law, online retailers must report purchase information to the state tax collector.   Recent news reports indicate the State Board of Equalization has billed consumers for unpaid taxes and penalties.  Specifically targeting out of state internet purchases of cigarettes during the recent fiscal year, the State's billings have totaled about $1.6 million. 

Social Security is taken less of a bite out of paychecks this year.

Employee contributions to social security are reduced from 6.2 to 4.2% temporarily for 2011.  Self-employed individuals also enjoy a one year 2 % reduction from 12.4% to 10.4%.   The employer portion remains unchanged for 2011 at 6.2%.   

Although this temporary easing of payroll tax burdens will be well received by the working world it does not indicate a trend.  For 2012 the rate returns to 6.2% and the projected maximum wage base upon which the tax is assessed, currently at $106,800, is scheduled to increase in 2012 to $110,700 and continue to increase yearly thereafter reaching $153,300 for year 2020.

Tax Relief and Job Creation

Highlights of the new law:

• The current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.  
• Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
• A two-year AMT "patch" for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT. Without the patch, an estimated 21 million additional taxpayers would have owed AMT for 2010.
• Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 will be retained. Specifically, the new law extends the $1,000 child tax credit and maintains its expanded refundability for two years, extends rules expanding the earned income credit for larger families and married couples, and extends the higher education tax credit (the American Opportunity tax credit) and its partial refundability for two years.
• Businesses can write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.
• Many of the traditional tax extenders are extended for two years, retroactively to 2010 and through the end of 2011. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit.
• After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. Estates of people who died in 2010 can choose to follow either 2010's or 2011's rules.
• Omitted from the new law: Repeal of a controversial expansion of Form 1099 reporting requirements.
• Also not included: Extension of the Build America Bonds program, which permits state and localities to issue federally-subsidized municipal bonds.

Health Care Coverage

On March 23, 2010 President Barack Obama signed the Patient Protection and Affordability Act (PPACA) into law. This law concentrates on expanding health care coverage and controlling the related costs. Provisions within this law are to be implemented within the next four years. Please click on the link for more details http://www.armstrongnavigator.com