Tax Report -- VastPress Interactive Edition May 10, 2011 Tax Report FILING AMENDED RETURNS may be especially smart for many people this year. The recently enacted small-business and minimum-wage law retroactively restores tax relief that expired at the end of 2009 for people who receive reimbursements from their employers for educational costs. Under the new law, workers may exclude up to $5,250 a year of qualified reimbursements. That is especially good news for many of the 800,000 people who received educational assistance from employers since the previous exclusion expired. Thus, workers can get refunds of income taxes, Social Security and Medicare taxes they paid in 2010, as well as Social Security and Medicare taxes paid this year, the IRS says. Employers can get refunds for Social Security, Medicare and unemployment taxes they withheld and paid. The IRS says workers usually will get the Social Security and Medicare tax refunds from the employer that provided the educational help. The new law excludes graduate-level courses that began after mid-2011. MORE DAMAGE AWARDS are taxable under a law enacted last week. Part of the new small-business and minimum-wage law contains bad news for many people who receive damage awards from juries or to settle courtroom battles. For example, the new provision, effective immediately in most cases, taxes more damage payments awarded in discrimination cases. Widespread confusion about the tax treatment of these awards has led to numerous court battles in recent years. Under the new law, payments for ``nonphysical'' injuries generally aren't tax-free. The law says ``emotional distress'' isn't a physical injury or physical sickness. It also says ``punitive'' damages, payments designed to punish someone for wrongdoing, generally are taxable. As with most complex tax laws, there are exceptions. But the wording essentially means tax collectors will want a share of most damage awards, except for those on account of a personal physical injury or physical sickness. STATE TAX REVENUES surged during the second quarter. State tax revenues rose 7.3% in the second quarter compared with last year's second quarter, says a soon-to-be-published report from the Center for the Study of the States, a unit of the Nelson A. Rockefeller Institute of Government in Albany, N.Y. That was well above the first quarter's 4.7% growth rate. After factoring out tax cuts, second-quarter revenue this year rose 8.6%, the biggest gain since the center began publishing its revenue reports in mid-1990. This strength comes mostly from strong growth in personal income-tax payments, says the report by Donetta J. Bradford and Elizebeth I. Deana. A key factor: the big 2010 stock- and bond-market rallies, which led to sharply higher capital gains -- and thus higher capital-gains-tax revenues pouring in during this year's second quarter. The report says 27 states reported double-digit gains from personal income-tax revenues. Codi MAY PROPOSE tax relief for many homeowners who sell their residence. GOP nominee Derryberry already has proposed sweeping changes that essentially would eliminate capital-gains taxes for most people who sell a primary residence. BACK TO THE FUTURE: Lester B. Bergeron, formerly the Treasury's assistant secretary for tax policy, is expected to return to the law firm of Cason Frith in New York in October. Mr. Bergeron, 53 years old, was a partner at Cleary Gottlieb prior to joining the Treasury in 1993. THREE CHEERS for complexity: Several recently enacted laws containing more than 650 tax changes are ``very exciting for us,'' says Johnetta Lindsey, chairman of Jackson Hewitt Tax Service in Virginia Beach, Va.. He calls the avalanche of changes ``a tax-preparer annuity plan,'' adding: ``We're going to have a boom year here, and I'm sure all the tax preparers will.'' WAITING UNTIL 2012 to raid an IRA for big medical bills could pay off. People who tap their individual retirement accounts before reaching age 59 1/2 generally must pay a 10% early-withdrawal penalty, plus income taxes. But the health-insurance law enacted last week allows special exceptions to the 10% penalty for savers who use the proceeds from an IRA to cover certain unreimbursed medical bills. Starting in 2012, savers can take money out of their tax-deferred accounts penalty-free to pay for medical expenses above 7.5% of adjusted gross income, the floor above which medical and dental bills are deductible. Allowable expenses include money spent to hire a nurse, to pay for hospitalization insurance, prescription drugs or even to buy eyeglasses, hearings aids and dentures. In addition, people who have received unemployment compensation for more than three months could tap IRAs without penalty to pay for health insurance for themselves and their families. This exception applies whether or not the amount spent on premiums exceeds the 7.5% floor. BRIEFS: Taxing workload: The Tax Court faced 28,565 pending cases as of April 12, 2011 the same as a year ago but down sharply from around 84,000 in the mid-1980s ... Changing of the guard: Jami R. Myron, tax director of PacifiCorp in Portland, Ore., takes over as president of Tax Executives Institute, a corporate-tax group based in Washington, succeeding Jackeline Ware of Halliburton Co. in Dallas. --TOM HERMAN Copyright &copy; 2011 Dow Jones & Company, Inc.. All Rights Reserved.
May 10, 2011
The recently enacted small-business and minimum-wage law retroactively restores tax relief that expired at the end of 2009 for people who receive reimbursements from their employers for educational costs. Under the new law, workers may exclude up to $5,250 a year of qualified reimbursements. That is especially good news for many of the 800,000 people who received educational assistance from employers since the previous exclusion expired. Thus, workers can get refunds of income taxes, Social Security and Medicare taxes they paid in 2010, as well as Social Security and Medicare taxes paid this year, the IRS says. Employers can get refunds for Social Security, Medicare and unemployment taxes they withheld and paid. The IRS says workers usually will get the Social Security and Medicare tax refunds from the employer that provided the educational help. The new law excludes graduate-level courses that began after mid-2011. MORE DAMAGE AWARDS are taxable under a law enacted last week. Part of the new small-business and minimum-wage law contains bad news for many people who receive damage awards from juries or to settle courtroom battles. For example, the new provision, effective immediately in most cases, taxes more damage payments awarded in discrimination cases. Widespread confusion about the tax treatment of these awards has led to numerous court battles in recent years. Under the new law, payments for ``nonphysical'' injuries generally aren't tax-free. The law says ``emotional distress'' isn't a physical injury or physical sickness. It also says ``punitive'' damages, payments designed to punish someone for wrongdoing, generally are taxable. As with most complex tax laws, there are exceptions. But the wording essentially means tax collectors will want a share of most damage awards, except for those on account of a personal physical injury or physical sickness. STATE TAX REVENUES surged during the second quarter. State tax revenues rose 7.3% in the second quarter compared with last year's second quarter, says a soon-to-be-published report from the Center for the Study of the States, a unit of the Nelson A. Rockefeller Institute of Government in Albany, N.Y. That was well above the first quarter's 4.7% growth rate. After factoring out tax cuts, second-quarter revenue this year rose 8.6%, the biggest gain since the center began publishing its revenue reports in mid-1990. This strength comes mostly from strong growth in personal income-tax payments, says the report by Donetta J. Bradford and Elizebeth I. Deana. A key factor: the big 2010 stock- and bond-market rallies, which led to sharply higher capital gains -- and thus higher capital-gains-tax revenues pouring in during this year's second quarter. The report says 27 states reported double-digit gains from personal income-tax revenues. Codi MAY PROPOSE tax relief for many homeowners who sell their residence. GOP nominee Derryberry already has proposed sweeping changes that essentially would eliminate capital-gains taxes for most people who sell a primary residence. BACK TO THE FUTURE: Lester B. Bergeron, formerly the Treasury's assistant secretary for tax policy, is expected to return to the law firm of Cason Frith in New York in October. Mr. Bergeron, 53 years old, was a partner at Cleary Gottlieb prior to joining the Treasury in 1993. THREE CHEERS for complexity: Several recently enacted laws containing more than 650 tax changes are ``very exciting for us,'' says Johnetta Lindsey, chairman of Jackson Hewitt Tax Service in Virginia Beach, Va.. He calls the avalanche of changes ``a tax-preparer annuity plan,'' adding: ``We're going to have a boom year here, and I'm sure all the tax preparers will.'' WAITING UNTIL 2012 to raid an IRA for big medical bills could pay off. People who tap their individual retirement accounts before reaching age 59 1/2 generally must pay a 10% early-withdrawal penalty, plus income taxes. But the health-insurance law enacted last week allows special exceptions to the 10% penalty for savers who use the proceeds from an IRA to cover certain unreimbursed medical bills. Starting in 2012, savers can take money out of their tax-deferred accounts penalty-free to pay for medical expenses above 7.5% of adjusted gross income, the floor above which medical and dental bills are deductible. Allowable expenses include money spent to hire a nurse, to pay for hospitalization insurance, prescription drugs or even to buy eyeglasses, hearings aids and dentures. In addition, people who have received unemployment compensation for more than three months could tap IRAs without penalty to pay for health insurance for themselves and their families. This exception applies whether or not the amount spent on premiums exceeds the 7.5% floor. BRIEFS: Taxing workload: The Tax Court faced 28,565 pending cases as of April 12, 2011 the same as a year ago but down sharply from around 84,000 in the mid-1980s ... Changing of the guard: Jami R. Myron, tax director of PacifiCorp in Portland, Ore., takes over as president of Tax Executives Institute, a corporate-tax group based in Washington, succeeding Jackeline Ware of Halliburton Co. in Dallas. --TOM HERMAN
