Tax Holiday!

Tax Holiday? Did I read that right? Yes!

If you are an employee being paid w-2 wages, the tax package passed last week included Tile VI - TEMPORARY EMPLOYEE PAYROLL TAX CUT. (as of this writing, the IRS has not issued information on this (www.IRS.gov). Tax Holiday as defined in the legislation means 2011.

The payroll tax withholding will change from 6.2% to 4.2% on the FICA taxes being withheld. If you make $10/hour and work 40 hours, that will mean a net increase of about $8 per week. While that might not seem like much, in the course of a year, that is $416, enough to buy a flat screen TV.

On the surface it has a net effect of lowering your Social Security contributions, too. However it appears there is a provision transferring funds from the general fund to the Retirement funds. That is suppose to keep Social Security from falling behind.

No determination has been made as to how that will apply to self employment income.

For brokers and agents with paid w-2 assistants, please be sure to make the appropriate adjustments for your employees. There is no change in the amount of employer contributions.

If you want to look at the whole thing, please check out Thomas.gov. You can find all the info by referencing HR 4853.

TAX BILL HIGHLIGHTS

With the tax relief package passed and signed at the end of the week, we see numerous extensions and some revision in numbers. I have been reviewing the contents of the bill and overall don't see major changes. Some apply to many. Most seem to apply to special circumstances. This post is simply a grocery list of some of the more common applications. My aim is to help you see what might affect you... to provide you with some talking points to review with your tax pro.

While I have opinions on the wisdom of the credits and adding $850B + in expenses to the federal budget, that is not my focus. I will say this much as far as analysis goes: There do appear to be some credits in this package to stimulate new manufacturing. Maybe that can jump start a real economic recovery.

SEC. 709. ENERGY EFFICIENT APPLIANCE CREDIT. This section will be good for next year. In short, it is promoting purchase of the 2011 models of appliances. Looks like a chance to spark that industry.

An extension of SEC. 710. CREDIT FOR NONBUSINESS ENERGY PROPERTY. ”(1) 10 percent of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year, and `(2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during such taxable year.”

Some of the other points:

SEC. 721. DEDUCTION FOR CERTAIN EXPENSES OF ELEMENTARY AND SECONDARY SCHOOL TEACHERS
SEC. 722. DEDUCTION OF STATE AND LOCAL SALES TAXES.
SEC. 723. CONTRIBUTIONS OF CAPITAL GAIN REAL PROPERTY MADE FOR CONSERVATION PURPOSES.
SEC. 725. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS FOR CHARITABLE PURPOSES.

There are also extensions of Estate Taxes, extensions of an investment incentive to generate business expansion, and finally a payroll tax holiday. A number of business credits were also extended.

Stay tuned for more on these and other changes in the tax code. Be sure to talk to your tax professional about how these changes will impact you. It might be worth taking a look at tax planning to help you maximize your return.