Hiring Tax Incentives

The Hiring Incentives to Restore Employment Act (HIRE) includes new opportunities for tax incentives for 2010 and 2011.  The first incentive exempts employers from paying the employer's 6.2% share of the Social Security payroll tax on a "qualified" employee for wages paid from March 19, 2010 through December 31, 2010.  The second incentive is a tax credit up to $1,000 for retaining a "qualified" employee on the empolyer's payroll for at least one year.

A "qualified" employee is one who commences employment after February 3, 2010 and before January 1, 2011 and was unemployed or worked less than 40 hours a week for the 60-day period prior to being hired.  The employee must either be a new employee and cannot be a replacement worker unless the other employee leaves voluntarily or for cause amd cannot be related to the employer.  There is no minimum number of weekly hours the new employee must work to qualify and no maximum dollar amount of payroll taxes that may be exempt.

To qualify for the $1,000 tax credit, a "qualified" employee must remain employed by the employer for no less than 52 consecutive weeks and the employee's wages for the last 26 weeks must be equal to at least 80 percent of the wages for the first 26 weeks of employment.

To claim the payroll exemption qualified employees must sign an affidavit that they have not been employed for more than 40 hours during the 60-day period ending on the date the employment begins.  Form W-11 must be signed by the employee.  The employer does not have to file the W-11 with the government.  The exemption from the employer's Social Security tax is claimed on the employer's employment tax return form 941.

There is no minimum or maximum number of hours an employee has to work to get the payroll exemption.

Small Business Health Care Credit

The new Healthcare bill provides a Small Employer Tax Credit.  To qualify the employer must have 25 or fewer employees (calculated as full time equivalent(FTE)) during the tax year, pay average FTE annual wages of $50,000 or less and have a qualified health plan under wihch the employer pays at least 50% of the premiums for enrolled employees (based on the premium for a single employee).  The tax credit is for the years 2010 through 2013 and is equal to 35% of the employer paid premuims for the year.  The full amount of the credit is only available for employers with 10 or less FTE's wih average annual wages less than $25,000 for the year. The credit phases out for employers with more than 10 employees and is fully phased out at 25 employees.   Partners, sole proprietors, two percent shareholders in S Corporation and five percent owners of the employer and their dependents are excluded.  The calculation is based on FTE's so employers with part time employees may qualify.

2010 Inflation adjustments to tax brackets and benefits

The personal exemption will not change for 2010 and will remain at $3,650.

The standard deduction for married couples filing a joint return will not change for 2010, remaining at $11,400, the same as 2009.  The standard deduction for single taxpayers will remain at $5,700 for 2010, but the standard deduction for taxpayers filing as head of household will increase to $8,400 for 2010, from $8,350 in 2009.

The tax brackets increase in 2010 for each filing status.  For married couples filing jointly the taxable-income threshold separating the 15% bracket from the 25% bracket is $68,000, up from $67,900 in 2009.  The threshold for singles separating the 15% bracket from the 25% bracket is $34,000, up from $33,950 in 2009.

The annual gift tax exclusion continues at $13,000 for 2010.

Alternative Minimum Tax Update

For the year 2009 the alternative minimum tax (AMT) exemption is increased to $46,700 for singles and $70,950 for joint filers.  For 2010 the exemption amounts currently revert back to $33,750 for single filers and $45,000 for joint filers unless extended by Congress.

2010 Standard Mileage Rates

Beginning January 1, 2010, the standard mileage rates for the use of a car will be 50 cents per mile for business miles driven, 16.5 cents per mile for medical or moving purposes and 14 cents per mile driven in service of charitable organizations.

Homebuyer's credit

The American Recovery and Reinvestment Act of 2009 increases the maximum amout of the first-time homebuyer's tax credit frm $7,500 to $8,000 and eliminates the repayment requirement for houses purchased in 2009.  The credit is 10% of the cost of the home (maximum $8,000) and applies to homes purchased before December 1, 2009.  A new home buyer is defined in the act as someone who has not owned a home for the previous three years.  Recapture of the credit applies if the taxpayer disposes of the home or no longer uses it as a principal residence within three years after purchase.  The credit starts to phase out at income of $75,000 for singles and $150,000 for joint filers.  Congress has extended the home buyer credit until April 30, 2010 and has added an additional credit for existing homeowners who acquire another residence.  This new credit of up to $6,500 is available through April 30, 2010 and is available to homeowners who have owned their existing home for five years.  The closing date for the purchase to qualify has been extended to September 30, 2010.

The IRS has released rules for claiming the homebuyer's credit for 2009 and 2010.  Initially any return claiming this credit can not be filed electronically.  All returns claiming this credit will have to include with the return a copy of the settlement statement if it is a purchase of a home by a first time buyer.  If the home is purchased by someone who meets the criteria for owning a previous home for five years (the $6,500 credit) the returns have to include forms 1098 for mortgage interest for five years, property tax records or insurance records for the five year period required to qualify for the credit.

Social Security Rates for 2010

Social Security benefits will not increase in Januay 2010 as announced by the Social Security Administration.  This is the first time since indexing that there is no increase in the social security benefit.  The Social Security maximum wage base ramains at $106,800 for 2010, the same as 2009.  The monthly medicare premium for 2010 is yet to be determined. 

New depreciation rules for 2010 (see the information under depreciation)

Forclosure debt forgiveness (see the information under Housing)

Vehicle Donations

The American Jobs Creation Act of 2004 changed the rules for charitable donations of vehicles.  The low now only allows a charitable deduction for the amount of the proceeds received by the charity from the sale of the vehicle.  The charity must send written notification to the taxpayer of the amount received at the sales.  If you claim a value of the car of more than $500, you must have a written acknowledgement of your donation from the organization and must attach it to your return.

Capital Gains tax rates and Dividends

Capital gains are taxed at 0% and 15%.  The 0% rate applies to taxpayers otherwise in the tax bracket of 15% or less for regular tax purposes.  This rate applies to the years 2008 through 2010.  Taxpayers in the regular tax brackets of 25% or greater have a 15% capital gains tax rate.  These lower capital gains tax rates expire after 2010 and revert back to the previous rates of 10% and 20%.

Dividends received by an individual shareholder from domestic and qualified foreign corporations generally are taxed at the same rates that apply to capital gains. This effectively taxes dividends received at the current 0% and 15% rates through the end of 2010. 

Kiddie Tax

The kiddie tax previously applied to a child under the age of 18.  With the passage of the 2007 Small Business & Work Opportunities Tax Act the kiddie tax is expanded to apply to children who are 18 years old or who are full-time students over age 18, but under age 24.  The expanded provison applies only to children whose earned income does not exceed one-half of the amount of their support.  This change is effective for the year 2008.

Estate and Gift Tax

The annual gift tax exclusion is currently $13,000 per person.   The Estate Tax exemption increased to $3,500,000 for the year 2009.  Under current law, the Estate Tax is completely repealed for the year 2010, but returns in 2011 with an exemption of  $1,000,000.  Look for this rule to be either repealed or changed for 2010.  Updates will be posted on this site.  The big change in 2010 with the temporary repeal of the estate tax is that the basis of assets inherited by the estate beneficiaries is now cost basis, the same as the basis for gifts, and will not be revalued to fair market value on the date of death.  There is an exception for up to $1.3 million of estate assets to continue to be valued at fair market value as of the date of death and for $3.0 million of estate assets to be valued at fair market value at date of death if the beneficiary is the surviving spouse.