U.S. Tax Law Changes for Individuals

December 2010

By Stephen C. Daas, CPA
Chief Operation Officer
Global Tax Network US, LLC
Phone: (763) 390-4931; Email: sdaas@GTN.com

There have been a number of U.S. tax law changes enacted during 2010.  This newsletter provides a summary of the tax laws that will impact the 2010 and future tax years.

Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

President Obama recently signed tax legislation that would postpone the sunset of the 2001 and 2003 tax cuts, reduce the estate tax, and extend a number of expiring provisions.  The law follows through on the framework agreed by congressional and Obama administration negotiators on December 6.

A few of the changes that may impact your U.S. inbound and outbound assignees include:

• The new law extends The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) income tax rates for two years for everyone.
• Temporarily extends the 10% bracket
• Temporarily extends the 25%, 28%, 33% and 35% tax brackets through 2012.
• The 15% top rate for capital gains and qualified dividends will remain for 2011 and 2012.
• Reduces the employee share of Social Security tax for 2011 from 6.2% to 4.2%.
• Temporarily repeals the personal exemption phase-out.
• Temporarily repeals the itemized deduction limitation
• Temporarily extends the current modified child tax credit. The amount stays at $1,000 per child and may be refundable.
• Temporarily extends the marriage penalty relief.
• Temporarily extends the expanded dependent care credit, which is $4,800 per child with an applicable percentage of 35%.
• Temporarily extends the increased adoption tax credit and adoption assistance programs exclusion, which is a $10,000 tax credit, and a $10,000 income exclusion for employer-assistance programs.
• Educational Incentives:  Extends the expanded Coverdell Accounts, the exclusion for employer-provided educational assistance, the expanded student loan interest deduction, exclusion from income of amounts received under certain scholarship programs, and the American Opportunity Tax Credit.
• Temporarily extends the $250 above-the-line deduction for teachers and other school professionals for expenses incurred by the educator in the classroom.
• Temporarily extends the local general sales taxes in lieu of income taxes.
• Temporarily extends certain energy credits.
• Provides for a two year alternative minimum tax (AMT) patch, which would prevent exemption amounts for individuals from dropping and allow the nonrefundable personal credits to offset AMT. This would increase the exemption amounts for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for 2011 to $48,485 (individuals) and $74,450 (married filing jointly). 

Other Tax Laws Changes that will Impact 2010 and Future Tax Years

Other tax law changes that have been previously enacted include:

• For 2011 the mileage rates are: Business mileage - 51 cents/mile, Medical mileage - 19 cents/mile and Charitable mileage - 14 cents/mile.
• Over the counter medicines and drugs no longer will be eligible to be covered under the FSAs.
• Starting in 2013, Medical expense deduction will have a 10% of AGI deduction, increasing from the current 7.5% deduction.
• Starting in 2011, the law requires brokers to report basis of assets sold and indicate if they are short or long term.
• Roth IRA conversions:  In 2010 the $100,000 AGI limitation has been repealed.  Taxpayers can elect to roll their regular IRA into a Roth IRA and include half of the taxable income in 2011 and half in 2012. A taxpayer can elect to tax the entire amount in 2010.

Foreign Bank, Financial Account, and Financial Asset Reporting

The Foreign Account Tax Compliance Act (FATCA) was implemented as part of the Hiring Incentives to Restore Employment (HIRE) Act, which was signed into law by President Obama on March 18, 2010. The purpose of the new law is to prevent U.S. individuals from evading U.S. tax by holding income-producing assets through accounts at foreign financial institutions (FFIs) or through other non-financial foreign entities (NFFEs). It adds significant new reporting and compliance including:

• Disclosing assets. Qualified individuals holding any interest in a specified foreign financial asset must attach to their tax return certain information about the asset. A "specified foreign financial asset" is, among other things, any account maintained by a foreign financial institution. Account holders must provide account number(s) and the name(s) of the financial institution maintaining the account, as well as the maximum value of the asset(s) during the tax year. In the case of stocks or securities, the holder must give the name and address of the issuer and the maximum value of the asset during the tax year. 

• Penalties. Individuals who fail to make the required disclosures will be subject to a minimum $10,000 penalty, and a maximum $50,000 penalty. Additionally, a 40 percent penalty will apply to the portion of any underpayment attributable to an undisclosed foreign financial asset.

• Effective Date. These new disclosure rules are effective for the 2011 tax year.  The information will be required to be included in 2011 tax returns.  The IRS will issue is expected to issue further guidance.

These foreign asset reporting requirements are in addition to the current reporting required for foreign bank accounts.

We recommend that you contact your tax advisor to determine the impact of any U.S. tax law changes on your international assignees and tax equalization program and policy.

Should you have any questions please feel free to contact us at Help@GTN.com

The information provided is for general guidance only, and should not be utilized in lieu of obtaining professional advice. Please see link for Circular 230 disclosure: http://www.gtn.com/circular-230-disclaimer.html