Last week, President Obama outlined the American Jobs Act, his jobs creation bill, which he will soon send to Congress. The bill includes a number of tax components which could impact your business, if the legislation passes Congress. Among them:
FICA payroll tax holiday. Employers would save 50 percent of the current FICA taxes they pay on the first $5 million paid in annual payroll. They would also pay no FICA tax on any increase in wages paid over the prior year due to new hiring or giving raises to current employees.
Employees would also see an extension and expansion of the current FICA tax holiday which would increase the tax break from 2 to 3 percent, or a savings of half of the total FICA tax employees normally pay.
Bonus depreciation. The American Jobs Act would extend this year’s 100 percent bonus depreciation through the end of 2012. Under current law, bonus depreciation will revert back to 50 percent for 2012 and expire entirely starting in 2013.
Because of the potential for higher tax rates in 2013 and beyond, taxpayers may want to consider electing out of bonus depreciation in 2011 or 2012 regardless of amount, thus saving depreciation deductions for higher tax rate years.
Tax credit for hiring the unemployed or veterans. President Obama’s jobs creation bill would provide a tax credit for hiring new employees who have been unemployed for at least six months, up to a maximum benefit of $4,000. The bill would also provide a credit for hiring veterans – although the details of this credit are still somewhat vague.
In addition to these tax provisions, President Obama’s legislation also calls for the extension of unemployment insurance, and combines the extension with the ability for recipients to receive jobs training that will bring them to new jobs.
Obviously a lot or very little can happen to the bill once it begins to navigate Congress. The biggest question for the legislation remains funding its $447 billion price tag. The President indicated that he would leave funding of the bill up to the bipartisan House-Senate panel created to reduce deficits by at least $1.2 trillion over the next decade.
We will follow the legislation closely and provide updates as they occur.