A new job creation package, H.R. 2847 or the Hiring Incentives to Restore Employment (“HIRE”) Act, was signed into law by President Obama on March 18, 2010. Approved by the Senate on March 17th by a large margin following House passage, the emphasis of the Act is on encouraging employers to hire and retain workers who are currently unemployed.
The major themes of this legislation are outlined below:
- Payroll tax forgiveness and an additional $1,000 credit for employers who hire (and retain) qualified unemployed workers
- Extension of enhanced Section 179 expensing – available for new and used property
- Enhanced tax credit bonds to infuse local economies with approximately $4.5 billion
The cost of the Act is expected to be offset by the following measures:
- Foreign Reporting – Increased disclosure and reporting requirements on accounts held in foreign countries, including a 30% withholding rate requirement for foreign financial institutions. To avoid the withholding requirements, the financial institutions must agree to and obtain waivers from account holders to disclose information to the U.S. There are exemptions for “small” accounts (those under $50,000) and certain corporations, exempt organizations and government entities.
- Delay in Worldwide Interest Allocation – With the American Jobs Creation Act of 2004, certain worldwide affiliated groups were entitled to make a one-time election regarding the foreign source taxable income of the group. Congress determined that delaying the effective date of this election would assist in the revenue portion of the HIRE Act and so has delayed the election until 2017.
- Corporation Estimated Taxes – For large corporations, those with assets exceeding $1 billion, their third quarterly installment will be increased to 121.5% of the payment that would be due. However, the fourth quarterly installment would be proportionately reduced. This process for estimated payments will be in effect for 2015 and 2019. A previous Act had also shifted large corporation estimated payments in 2014.
The Act does not provide any extenders except for the Section 179 expensing. Individual and Business extenders are being worked out in the House and Senate. There are numerous business and individual extenders currently being considered and “reconciled” between the House and Senate, as well as each branch having its own list of extenders. There is still no definite movement regarding Estate Taxes. Some of the individual extenders being reconciled are:
- Teachers’ classroom expense deduction
- Additional standard deduction for real property taxes
- State and local sales tax deduction
- Higher education tuition deduction
Along with the extenders, House and Senate members expect offsets from the following revenue raisers (partial list):
- Requirement for investment fund managers to be taxed at ordinary rates for services provided to a partnership when they receive partnership interests in exchange for the services
- New reporting and disclosure requirements for foreign financial institutions and U.S. account holders
- Codification of the economic substance doctrine – imposition of a strict liability penalty on underpayments of taxes resulting from a transaction with no economic substance
- Exclusion of cellulosic biofuel credits for producers of fuels with certain amounts of water, sediment or ash, including black liquor (the substance produced from digesting pulpwood into paper pulp)
With so many issues requiring major revenue raisers being debated in Washington, there are sure to be many new tax provisions as a result. Visit www.taxwarriors.com on a regular basis for updates on how these changes may affect you.
If you have any questions regarding the HIRE Act or any tax situation, please call our offices at (215) 665-3960 and ask to speak with one of our shareholders or email us at info@taxwarriors.com .