This Act provides relief from the employer share of social security taxes for wages paid by employers that hire unemployed workers. The relief applies to wages paid beginning on the day after date of enactment (March 19) and ending on Dec. 31, 2010.  The Act also includes a credit for retaining these employees and a one year extension of the section 179 deduction limit at $250,000.

Payroll Tax Holiday
Following are some important points regarding the payroll tax holiday:

• The payroll tax holiday applies only to the 6.2% OASDI portion of the employer’s tax. It doesn’t apply to the 1.45% Medicare (HI) portion of the employer’s tax, nor to any part of the employee’s tax. It also doesn’t apply to the self-employment tax paid by self-employed individuals.
• There’s no limit on the total amount of an employer’s OASDI tax that may be forgiven under this provision. However, the amount of tax forgiven for any employee can’t exceed $6,621.60, because the OASDI tax applies to only the first $106,800 of wages paid in 2010 ($106,800 × 6.2% = $6,621.60).
• An employee need not work for a minimum number of hours in order for the employer to qualify for the payroll tax holiday. Thus, the holiday is available for wages paid to part-time employees.
• The payroll tax holiday ends for wages paid after Dec. 31, 2010. Thus, hiring an unemployed worker earlier in the year will increase the tax saving.

To qualify, the new hire must be a “qualified individual,” defined as an individual who:

• Begins employment with a qualified employer after Feb. 3, 2010, and before Jan. 1, 2011 (Although a qualified employee who begins work after Feb. 3, 2010 can be eligible for the payroll tax holiday, the employer’s OASDI tax will be forgiven only for the wages paid after March 18),
• Certifies by signed affidavit, under penalties of perjury, that he hasn’t been employed for more than 40 hours during the 60-day period ending on the date the individual begins employment with the qualified employer,
• Isn’t employed to replace another employee of the qualified employer unless that other employee separated from employment voluntarily or for cause,
• Isn’t related to the qualified employer.

Section 179 Expanded
The section 179 limitation of $250,000 that applied to 2009 is now applicable for 2010.  As a result, a business meeting various requirements can expense up to $250,000 of qualified asset additions rather than depreciate them.

New Up-to-$1,000 Credit for Each “Retained Worker”
The Act also provides an up-to-$1,000 credit for “retained workers.” A retained worker is defined as any qualified individual, as defined above for purposes of the payroll tax holiday: 

• Who was employed by the taxpayer on any date during the tax year, 
• Who was so employed by the taxpayer for a period of not less than 52 consecutive weeks, and 
• Whose wages for that employment during the last 26 weeks of the period equaled at least 80% of the wages for the first 26 weeks of that period.

The amount of the credit is determined for each retained worker as the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week-period.  Thus, if a retained worker’s wages during the 52-consecutive-week-period exceed $16,129.03, the increase to the current year business credit for that retained worker will be $1,000.

For an employer using the calendar year as its tax year, the increase to the current year business credit will be claimed on the employer’s 2011 tax return.

• Have you hired anyone since February 3rd, including part-timers or interns, who hadn’t worked more than 40 hours in the 60 days prior to their hiring?
• Do you pay for 50% or more of your employees’ health insurance premiums?
• Are you a new Indiana business starting in 2010?
• Will you be expanding the operation of your business location in Indiana, resulting in at least 10 new employees during 2010?

If you can answer yes to any of these questions, then one of these credits may be available to you.  If you are considering hiring or offering health insurance to your employees, perhaps these credits will be an additional incentive in doing so.  These credits could result in some substantial savings.  For instance, if you hired a new employee on March 1st at $60,000 salary who hadn’t worked in 2010, your company could save over $3,000 in 2010 for this one hire with the HIRE credit.

If you think one of these credits could be available to you or you would like to learn more about them, contact one of our business consultants.  Or if you are wondering about a credit on a recent purchase for your individual tax return, we are always available to answer questions and proactively plan throughout the year as it applies to your situation(s) so that you can maximize your cash and minimize your tax bill.

The first time homebuyer credit phases out for taxpayers with modified adjusted gross income in excess of $75,000 ($150,000 for joint filers). The phase-out is complete when modified adjusted gross income reaches $95,000 ($170,000 for a joint return).

Long-time homeowners may qualify for a smaller credit when replacing their property. The qualification for the long-time homeowner is anyone who has owned and used the same residence as principal residence for any period of five consecutive years during the previous eight-year period. The amount of the credit is the lesser of $6,500 or 10 percent of the purchase price. The effective beginning date is November 6, 2009 and ends on May 1, 2010 with a purchase contract. The property close by July 1, 2010.

The credit begins to phase out for taxpayers with modified adjusted gross income of $125,000, or $225,000 for married taxpayers filing joint returns, effective for purchases made after November 6, 2009. The credit is completely phased out for taxpayers with modified adjusted gross income of $145,000 or $245,000 for married couples filing joint returns.

No first-time homebuyer credit is allowed if the purchase price of the principal residence is greater than $800,000.

Be sure to contact Murphy CPA Group if you have questions.

The amount of the RMD is calculated on the account balance one year prior to distribution.  In 2008, many account balances went into steep decline, and Congress has allowed taxpayers time to rebuild their account balances.  In addition, by not taking your RMD, you will reduce the amount of social security subject to tax and you will have a larger account balance to consider if you wish to convert into a Roth IRA. 

If you have already taken one lump sum RMD from your qualified retirement plan at any time in 2009, you can unwind the distribution.  You will be able to rollover the distribution tax free through November 30, 2009.  Return the amount of the distribution that you received and mail a check to your Plan.  This will be treated as a direct rollover.

If you have any questions, please give us a call.

All deposits into a Roth IRA have been taxed and earnings will be tax free. This is in direct contrast to the traditional IRA as the taxpayer defers tax on the contribution and the earnings will grow inside the IRA until they are withdrawn and then taxed. Withdrawals from a Roth IRA will not affect the taxability of the taxpayer’s social security benefits. There are no minimum required distributions in a Roth as there were in a traditional IRA. If the taxpayer does not need the money now, they may leave it in the Roth IRA to continue to grow. Finally, the taxpayer may bequeath the Roth IRA to anyone and the beneficiary will not have to pay taxes on that money.

In spite of the benefits mentioned above, the conversion of the traditional IRA to a Roth IRA does have some drawbacks. The converted traditional IRA will be taxed at the ordinary income rate. The taxes may be paid in 2010 or 50% in 2011 and 50% 2012. With this increase in taxable income, the taxpayer may be in a higher tax bracket, may lose some of their itemized deductions, and may be subjected to the alternative minimum tax. Also, if the taxpayer needs to pay the tax bill with funds from the IRA, that amount will be subject to a 10% early withdrawal penalty if the taxpayer has not reached 59 ½ years of age.

You will want to consider if this is a good move for you. If this is done incorrectly, you may be subject to greater taxes. Each situation is unique. We are here to assist you in deciding if this is right for you.