November 2009 Law Provides more Stimulus and Unemployment Spending
Under broad bipartisan support, Congress passed the Worker, Homeownership & Business Assistance Act. The authors provide details not covered in the surface-level reporting you may have already seen.
Drawing broad bipartisan support, Congress passed the “Worker, Homeownership & Business Assistance Act” (hereinafter the “Act”), which President Obama promptly signed. Here are details not covered in the surface-level reporting you may have already heard or seen.
Businesses of all sizes with net operating losses (NOLs) incurred in 2008 and 2009 can recover prior income taxes paid on profits during the last five years. Losses carried back to the fifth prior year are limited to recovery of only 50 percent of that year’s income. Previously this 5-year loss carryback was limited to small businesses with revenues of $15 million or less.
Allowing an expanded NOL carryback is something that is typically done in a recession. It accelerates getting a cash tax benefit into the hands of business that are now losing money, but which previously had been successful taxpayers. Changing the carryback period is only a timing issue for businesses that survive, since a successful business would eventually get the use of the same tax losses to offset future taxes. NOL carryforwards remain unchanged at 20 years.
The “temporary” federal employment surtax of 0.2 percent is extended through June 2011, instead of expiring at the end of 2009. The FUTA rate continues to be 6.2 percent. This tax affects all U.S. businesses.
The Act increases civil penalties for late-filed returns for S-corporations and partnerships (including LLCs treated as partnerships) from $89 to $195 per month per shareholder/ partner for each month that a return is filed after the deadline (including extensions). The penalty continues to be applied for a maximum of twelve months.
All tax professionals are now required to file individual, estate, and trust return electronically. Individuals preparing their own returns and preparers filing 10 or fewer returns per year need not file electronically.
The Act delays implementation of worldwide allocation of interest by seven years. This delayed provision has never actually been in effect. It was doomed under the current Congress, whose majority party criticized this provision as rewarding businesses for exporting U.S. jobs.
Homebuyers Refundable Tax Credit
The first-time Homebuyer Tax Credit was extended and expanded. The credit was initially part of the February financial stimulus package, and was set to expire on November 30, 2009. The $8,000 credit for first-time buyers is extended to April 30, 2010. A $6,500 new refundable credit was passed for existing homeowners who have lived in their existing home for five consecutive years within the past eight years.
The qualifying income is increased, allowing individual taxpayers who make up to $125,000 and married joint filers to earn up to $225,000. The earlier credit had been limited to individuals earning up to $75,000 and couples earning up to $150,000. After these income limits, the credit is phased out over the next $20,000 of income. Consequently, the credit is eliminated for those individuals who make $145,000 and couples who make $245,000.
Tax credits could be claimed for homes that cost up to $800,000. Previously, this limitation did not exist.
The credit is extended for an additional year for members of the armed forces who are away from home on extended duty.
Rampant fraud has been reported under the existing program with minors claiming the credit. Dependants can no longer claim the credit. Additionally, corroborating information must be filed with a return claiming the credit.
The law extends unemployment benefits for 14 weeks. The 27 states with unemployment rates of 8.5 percent or higher would gain an extra six weeks, or an additional 20 weeks of extended benefits. In California, laid-off workers can now get up to 79 weeks of unemployment payments, consisting of 26 weeks of regular state benefits, followed by up to 20 weeks of federal extended benefits, then up to 13 weeks under a second federal extension for high unemployment states and up to 20 additional weeks under a third extension known as Fed Ed.
California’s EDD says that it will take them several weeks to get the revised program operating. California’s EDD will backdate claims from the date the law takes effect. EDD states they will notify people of their eligibility so "there is no need to call."
Expect Congress to provide still further extension of existing federal unemployment benefits that would otherwise expire at the end of the year. This includes the other federal extensions described above, a $25 weekly increase in benefits, a tax deduction for up to $2,400 in benefits, and the 65 percent federal subsidy for Cobra health insurance premiums.
ABOUT THE AUTHOR: David Nolte
Mr. Nolte has 30 years experience in financial and economic consulting. He has served as an expert witness in over 100 trials. He has also regularly served as an arbitrator. Mr. Nolte has achieved the following credentials: CPA, MBA, CMA and ASA.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.