McKonomics

Key Changes in the New Healthcare Law

The new Patient Protection and Affordable Care Act of 2010, and its accompanying reconciliation law, provide broad-based changes for employers as well as many individuals. In addition to virtually mandating health insurance coverage for all U.S. citizens, this massive health care reform legislation includes several other far-reaching tax provisions.

 

The changes generally take effect over time -- in some cases, you won't see them for two to four years. But advance planning can maximize tax advantages for some and minimize tax disadvantages for others.

 

Here's a brief summary of some of the provisions.

New Hiring and Retention Incentives For Employers

On March 18, 2010, President Obama signed the new Hiring Incentives to Restore Employment Act (HIRE) into law. This federal legislation creates brand-new tax breaks for hiring and retaining unemployed workers, extends the enhanced business equipment deduction that was available last year, and reinforces the "Build America Bond" program.

 

Here's a quick rundown on these three key tax breaks:

 

Employers Get a Payroll Tax Holiday for New Hires -- Plus a Potential Tax Credit Bonus. Normally, an employer is required to pay its share of Social Security taxes on wages earned by employees. For 2010, the portion of the tax is 6.2 percent on the first $106,800 of wages.

Roth IRA Conversions: Is The Time Right? Evaluate Relevant Factors Before Converting

For many taxpayers, the opportunity to make a Roth IRA conversion is finally here. Beginning in 2010, you can convert a traditional IRA to a Roth, regardless of your income. Prior to 2010, such a conversion was allowed only in a year in which your modified adjusted gross income (MAGI) didn't exceed $100,000.

 

The elimination of the $100,000 dollar cap was actually part of the Tax Increase and Prevention Reconciliation Act, which was enacted in 2006, so we waited four years for this opportunity to kick in.

Uncle Sam and States Look for Revenue in Worker Classification

Businesses that treat workers as independent contractors face an increasing risk that state and federal agencies will contest the classification of some of these individuals. Although independent contractor relationships have long been an audit target, governments experiencing deep financial pressures are scrutinizing them with new fervor.

 

Latest example: In his fiscal 2011 budget, President Obama proposes to focus more on employers using independent contractors. For the next fiscal year, the budget allocates $25 million to the Department of Labor for a joint effort with the IRS that includes hiring investigators to find workers who can be re-categorized as employees.

 

The result for Uncle Sam will be increased revenue. The Obama budget states the initiative will bring in an additional $7 billion over 10 years.

Identity Theft: Keep Your Name Clear

Identity theft is a growing problem. It can result in a ruined credit record and even the loss of your life savings.

 

Many people think it's a problem that could not happen to them. But even if you are careful about storing personal papers securely, there are many ways an identity thief can get information. For example, making a change of address to divert your mail, rummaging through your trash, or posing as someone who has a legitimate need for information, such as a landlord or a creditor.

 

With the data in hand, the thief may then, among other things, change the mailing address on your credit card account and run up charges; open a new credit card account in your name and not pay the bills, establish phone or wireless service; open a bank account and write bad checks; file for bankruptcy under your name, and buy cars using a loan.

 

Here are some of the precautions you should take to prevent identity theft: