By Jack Keough
Here it is the beginning of 2013 and businesses (as I write this) still don’t know what effect new taxes will have this year on their operations because of the so-called “Fiscal Cliff.” It is unconscionable. People talk about the effect the taxes created under the new health care bill but there are a slew of other taxes that will go into effect Jan.1, 2013. At the time of this writing, it appears as though a proposed deal is on its way to the House of Representatives after passing through the Senate early this morning.
At least one part of the new health care law was a cleared up this weekend and it will have a major impact on large employers-defined as companies with more than 50 employees. The Wall Street Journal reported that large employers who are subject to the health overhaul law’s requirement to provide insurance or pay a fee must also extend coverage to their workers’ dependent children, according to federal regulations released Friday.
The 144-page proposed regulation that the Obama administration offered has new details for how employers will have to comply with the health overhaul law, which is set to take full effect in 2014.
In addition, the maximum amount that can be contributed to a flexible spending plan for a 12-month period has been reduced to $2,500.
Another contentious change, at least in the minds of many small business owners, is the estate tax or as some call it, the “death tax.” Under current law the federal estate tax exemption is set at $5,120,000 for 2012. And it then changes dramatically to $1 million in 2013. The estate tax rate, itself, is scheduled to increase from 35% in 2012 to 55% in 2013. The betting is that the rate will be settled at 40%, which is where the Senate placed the rate in its proposed “Fiscal Cliff” plan. That still could be horrific for the heirs of small business owners who die in 2013—possibly forcing them to sell the businesses because of the high estate taxes .Congress is still debating this measure so it is too early, believe it or not, to determine what will eventually happen. Last year various representatives in Congress attempted to introduce bills to lower those rates, or eliminate them entirely, but were unsuccessful.
Then there is a new stricter limit on your itemized deduction for medical expenses paid for you, your spouse and your dependents. Before 2013 you could claim a deduction for the excess of your expenses over 7.5% of your adjusted gross income (AGI). Starting next year, the deduction threshold for most people is raised to 10% of AGI. However, if either you or your spouse will be 65 or older as of Dec. 31, 2013, the 10%-of-AGI threshold will not take effect until 2017.
Also, there is a 0.9% Medicare tax on unmarried individuals with wages and/or self-employment income in excess of $200,000. Married joint-filing couples will face the new tax if their combined income from wages and/or self-employment exceeds $250,000.
The payroll withholding tax and the self employment tax had been reduced by two percentage points for the last two years. Payroll withholding FICA will return to 6.2%, up from 4.2% and self-employment tax will return to 12.4% in 2013, up from 10.4%.
A number of itemized deductions is also being phased out, including charitable contributions.
Meanwhile, the electrical/wind industry awaits a decision as to whether there will be an extension of the subsidies for wind power. Already, the uncertainty regarding the subsidy has resulted in thousands of layoffs in the wind power sector. There is some optimism that there will be an extension for at least one year, according to some senators. Right now the industry is at a standstill as manufacturers report very few orders. The subsidy is a tax credit of 2.2 cents per kilowatt-hour produced.
Check in with your tax advisor as to what the changes will mean for you and your businesses, and fasten your seat belts because in 2013, we’re in for a bumpy ride.
Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at firstname.lastname@example.org or email@example.comTagged with tED