Marc Soss posted on April 01, 2011 00:09
April 2011 Navy
By Marc J. Soss, SC, USN
The Tax Relief Act of 2010 (the “2010 Tax Act”), signed in law on 17 December 2010, created benefits for the hiring and retention of employees and education tax incentives. The following is a brief synopsis:
EMPLOYMENT-RELATED TAX CHANGES:
Reduction in Employee-Paid Payroll Taxes. The 2011 Social Security tax for employees is decreased to 4.2 percent (down from 6.2 percent) and for self-employed individuals to 10.4 percent (down from 12.4 percent). The tax decrease will be applicable to all employee and self-employment compensation earned up to $106,800 threshold (in 2011).
Work Opportunity Tax Credit. The law extends through 31 December 2011 (it had been set to expire on 31 August 2011) the ability of a business to claim a tax credit equal to forty (40%) percent of the first $6,000 of salary paid to a new employee in one of nine targeted groups. The tax credit will apply to employees hired after the date of enactment of the law.
Employer Wage Credit for Activated Military Reservists. Through 2011, this small business tax credit is extended for differential wage payments made to mobilized U.S. military Reserve and National Guard members. The provision provides a credit against the taxpayer’s income tax liability, for a taxable year, in an amount equal to twenty (20%) percent of the sum of differential wage payments.
Extension of Unemployment Insurance. The law provides a one-year reauthorization of federal unemployment benefits for eligible unemployed workers. In addition, it continues 100% federal financing of “Extended Benefits” (EB) for one year. The legislation does not add anything to the current maximum of up to 99 weeks of benefits available.
EDUCATION TAX INCENTIVES:
Temporarily Extend Expanded Coverdell Accounts. The tax law extends through 2012 the increase in annual contributions (from $500 to $2,000) and expanded definition of education expenses (to include elementary and secondary school expenses) for Coverdell Education Savings Accounts. These tax-exempt savings accounts are utilized by individuals to pay the higher education expenses of a designated beneficiary.
Exclusion for Employer-Provided Educational Assistance. The education assistance tax provisions expanded under EGTRRA (to include both undergraduate and graduate education) are extended through 31 December 2012. The extended tax provision allows an employee to exclude up to $5,250 per year of employer-provided education assistance from gross income and for employment tax purposes.
Student Loan Interest Deduction. Many taxpayers utilize student loans to pay for their education (undergraduate and graduate school) associated expenses. These loans include monthly interest charges. The tax law extends through 31 December 2012, the above-the-line deduction of up to $2,500 for such interest expenses, and the EGTRRA provisions that eliminated the sixty-month rule and increased the income phase-out to $55,000 to $70,000 ($110,000 and $140,000 for joint filers).
American Opportunity Tax Credit. The tuition tax credit, available for up to $2,500 of the cost of annual tuition and related expenses, is extended through 31 December 2012. Under its provisions, taxpayers are provided a tax credit based on 100% of the first $2,000 of tuition and related expenses (including course materials) and 25% of the next $2,000 of tuition and related expenses paid during the taxable year. The tax credit is subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly).
Corrections to 2010 Federal Income Tax Return article Navy January issue:
Lines 7-22, Income: The paragraph incorrectly states that the first $2,400 of unemployment compensation will be excluded from your 2010 income. The income exclusion was not included in the final draft of the 2010 Tax Act.
Tax Return Filing Date: The federal income tax return deadline is extended from 15 April to 18 April 2011.