AS THE CONGRESS TURNS
“Senate Finance Committee member Charles E. Schumer, D-N.Y., told reporters on January 14 that adding a one-year patch for the alternative minimum tax (AMT) to the stimulus package is still under consideration . . . Baucus acknowledged the same a day earlier, telling reporters that the AMT patch is ‘still on the table’.”
On one hand it would be good to get it over with early in the year – so we do not have to wait until the last minute as in past years.
But passing a one-year patch so early in the year means that Congress will probably not be dealing with the issue of repealing the mucking fess altogether in 2009.
Knowing Congress I suppose I should be happy to get what I can. Extending the annual fix process now is better than nothing – and better than dragging it out all year again. Hopefully Congress will seriously address the issue of repeal in 2010, which now appears will be the big year for Tax Code overhaul.
TTFN
IT KEEPS TURNING!
Senate Finance Committee Chairman Max Baucus (D-Mont.) has unveiled the Senate version of the tax provisions for inclusion in the
American Recovery and Reinvestment Act of 2009.They include –
· Making Work Pay Credit: an individual tax credit in the amount of 6.2 % of earned income not to exceed $500 for single returns and $1,000 for joint returns in 2009 and 2010.
· Seniors, Disabled Veterans and SSI: a one-time payment of $300 to Social Security beneficiaries and SSI recipients receiving benefits from the Social Security Administration and Railroad Retirement beneficiaries.
· Temporary Suspension of Taxation of Unemployment Benefits: federal income tax temporarily suspended on the first $2,400 of unemployment benefits per recipient.
· Expansion of the Earned Income Tax Credit: an increased credit for three or more children and additional marriage penalty relief for married couples.
· Expansion of the Refundable Child Tax Credit: increased eligibility for the refundable child tax credit in 2009 and 2010 by lowering the threshold to $6,000.
· American Opportunity Tax Credit: a $2,500 higher education tax credit that is available for the first four years of college
· Computers as qualified education expenses in 529 Education Plans: computers and computer technology to qualify as qualified education expenses
· Homeownership Tax Credit: modifies the $7,500 tax credit for home purchases that occur after 2008 and before July 1, 2009.
Hey – where’s the dreaded AMT fix?
I will provide more information as it becomes ava
ilable.Tax Forms, Complexity, and Tim Geithner
People often measure our tax system’s complexity by counting tax forms as if the documents, not the law, are the culprit. But my former IRS colleagues used to remind me that forms actually help taxpayers. Imagine if people were required to read the Internal Revenue Code to figure out how much they owe.
This truism leapt to mind when I read about Treasury Secretary-designate Tim Geithner’s tax problems. While employed at the IMF, Geithner failed to report liability for about $34,000 in payroll taxes. After the IRS audited his 2003 and 2004 returns, he paid the back taxes with interest. Recently, he also remitted payroll taxes for 2001 and 2002, even though by then the statute of limitations had expired.
For most workers, paying payroll taxes is simple because employers withhold both the employee and employer portions. Self-employed people and those with income from partnerships or farms must report their incomes on Schedules C, E, or F. Those forms have a line for payroll tax (called self-employment tax) and refer taxpayers to a Schedule SE to compute this tax. Tax software performs these calculations, completes Schedule SE, and reports the tax owed automatically.
But employees of international organizations (and some others, including clergy) live in a tax never-never land. Their employers aren’t required to pay
Here’s where the fun begins. There is no place to remit this payroll tax on Form 1040, where employees report their wages. Instead, the employee must complete Schedule SE even if he has no self-employment income or any other reason to complete a schedule (C, E, or F) that would direct him to Schedule SE.
Ready for some more fun? Line 2 of Schedule SE lists the types of income that must be reported for SE tax and also specifies: Ministers and members of religious orders, see instructions for amounts to report on this line. Who would guess that these instructions also apply to
As the Senate Finance Committee report on the Geithner matter states, the IMF prepares a booklet for its employees detailing their tax responsibilities and sends its U.S. employees quarterly wage statements that show how their earnings are grossed up to cover the cost of state and federal income taxes and payroll taxes they must pay. So Mr. Geithner had a lot more to go on than just the IRS tax forms. Still, the chances of an error would have been lower if the tax forms had clearly pointed to the right result. And I and some of my colleagues who have consulted for the IMF have ourselves been confused about whether to report our IMF income as wages or self-employment income for tax purposes, with some of us “tax experts” paying too much self-employment tax in past years.
No tax form can clarify every possible wrinkle in the tax code, and the number of taxpayers involved probably doesn’t warrant a special form for income from international organizations or another line on the 1040. But it is not hard to see why we need so many tax forms.
Maybe, however, there is some benefit to this embarrassing episode. Having stumbled in the overly complex maze that is the Internal Revenue Code, maybe Treasury Secretary Geithner will have some sympathy for those who want to simplify it.
The Baucus-McCain Health Reform Plan
Well, not exactly. But I wanted to get your attention.
Senate Finance Committee Chairman Max Baucus (D-Mt.) has unveiled a blueprint for major health reform. And it includes a call for scaling back the tax benefits of employer sponsored insurance. Baucus has put on the table a variation of John McCain’s plan to scrap that benefit and use the money to finance a refundable credit for anyone buying insurance (either in the individual market or though their employer). This would be the very same idea that Barack Obama so frequently ripped as a massive tax increase on your health care.