Tax Update: Transition Time in Washington
A rare show of unity, then little else until after the election.
Who says there’s no common ground between Democrats and Republicans? In mid-November the President signed the VOW to Hire Heroes Act of 2011. The House approved by a vote of 422–0; and the Senate, 95–0. Among other things, the bill:
- Repeals a 3% withholding tax on payments to federal contractors
- Introduces two tax credits for businesses that hire veterans: Returning heroes tax credit of as much as $2,400 for businesses that hire a veteran who served after September 11, 2001, and who has been unemployed at least four weeks during the past year. The credit increases to as much as $5,600 if the veteran has been unemployed at least six months. Wounded warriors tax credit of as much as $4,800 for businesses that hire a veteran who has a service-related disability and has been unemployed at least four weeks during the past year. The credit increases to as much as $9,600 if the veteran has been unemployed at least six months.
Congress recently passed several other acts — albeit to extend essentially the same tax break (a temporary reduction of the employee or self-employment payroll tax from 6.2% to 4.2%). The first extension was signed in late December and lasted through February. The second extension, signed on February 22, 2012, gave the tax break life through the end of the year.
Congress, however, let many of some 65 other temporary tax provisions expire. They included the alternative minimum tax (AMT) patch, a yearly fix that keeps the AMT from affecting large numbers of additional taxpayers, and tax-free distributions from IRAs to charities. Still, in recent years Congress has engaged in a biannual tradition of sorts: tackling expiring tax provisions by retroactively reviving them during the following tax year. The same may happen in 2012.
There are, of course, more meaningful tax issues Congress needs to address, such as the expiring Bush income tax and estate tax cuts. Yet election-year politics will almost certainly make this task difficult, if not impossible, before voters go to the polls in early November. Look for an end-of-the-year whirlwind of activity. Then again, much will depend on whether a change in the White House or shift in control of Congress is in the cards. Clearly there are more than a few unknowns. Even so, you should discuss your tax-planning options with your tax advisor today and reserve time to set strategy before year-end.
Any information presented about tax considerations affecting client financial transactions or arrangements is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties. Neither U.S. Trust, Merrill Lynch, and its representatives nor its financial advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors.
Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy.