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January 3, 2013News Flash January 3, 2013 – President Signs Bill Extending Tax Policies of Client InterestOn January 2, 2013, the President signed the legislation passed and approved by both the Senate and theHouse of Representatives to avert the tax side of the so-called fiscal cliff. The American Taxpayer Relief Actof 2012 (ATRA) will shield many middle-class taxpayers from tax increases set to take effect this month,while at the same time, let tax rates rise for others. As has been widely reported, the measurepermanently extends ordinary income tax rates for individuals earning less than $400,000 per year (andjoint filers earning less than $450,000 per year) and alters capital gains and dividend rates, the estate taxand the Alternative Minimum Tax, while delaying for an additional two months the effective date forautomatic “sequestration” spending cuts. As the Act is extensive this News Flash only addresses certainprovisions which are believed to be applicable to Willis clients and their employees as it relates toemployee benefits. For additional guidance on how this Act personally affects client employees, thoseindividuals should speak with a tax adviser. The legislative language can be found athttp://www.gpo.gov/fdsys/pkg/BILLS-112hr8enr/pdf/BILLS-112hr8enr.pdfWhat Was Not IncludedFor the years 2011 and 2012, Congress had legislated a temporary payroll tax holiday designed to putmore money into the hands of American workers. During those two years, employees paid 4.2% of theirwage earnings for the Social Security tax, instead of the normal 6.2% rate. However, ATRA did not includean extension of the payroll tax holiday. Therefore, as of January 1, 2013 the Social Security taxes willrevert back to the 6.2% rate on earned income up to the Social Security 2013 wage base of $113,700. Asthe payroll tax holiday only saw a reduction for employee contributions and not employer matchingcontributions, the failure to extend this tax holiday will not affect employers.Benefit Related ProvisionsEmployer Provided Education AssistanceATRA permanently extends the expanded exclusion from income and employment taxes employerprovided education assistance up to $5,250. Prior to 2001, the Economic Growth and Tax ReliefReconciliation Act of 2001 (EGTRRA) temporarily extended the income exclusion and expanded theprovision to include undergraduate and graduate education. The Act extended these provisions for taxableyears beginning after December 31, 2012.Adoption Credit/AssistanceTaxpayers adopting children can receive enhanced adoption credit and the income exclusion foremployer-paid or reimbursed adoption expenses. EGTRRA increased the credit and income exclusion from$5,000 previously ($6,000 for a special needs child) to $10,000. ATRA extends for taxable years beginningafter December 31, 2012 the increased adoption credit amount and the exclusion for employer-assistanceprograms as enacted in EGTRRA. The limit is applicable both for non-special needs and special needsadoptions. There is a phase-out of the adoption credit for taxpayers above a specified inflation-adjustedlevel of modified adjusted gross income. For 2013, the adoption credit phase out beginning point isprojected to be $191,530.
January 3, 2013Parity for Exclusion from Income for Employer-Provided Mass Transit and Parking BenefitsThis provision would extend through 2013 the increase in the monthly exclusion for employer-providedtransit and vanpool benefits from $125 to $240, so that it would be the same as the exclusion foremployer-provided parking benefits.CLASS Program under PPACA RepealedThe bill formally repeals the Community Living Assistance Services and Supports (CLASS) program, thevoluntary, federally administered long-term care insurance program established under the PatientProtection and Affordable Care Act (PPACA), and institutes a “Commission on Long-Term Care” that woulddevelop a new comprehensive long-term care plan and possibly make formal recommendations toCongress. The Obama Administration had already suspended implementation of the CLASS program, citingconcerns about fiscal sustainability.As previously noted, the Act contains many provisions that may personally affect the employees of clients,so additional guidance of a tax adviser should be sought.This information is not intended to represent legal or tax advice and has been prepared solely for informationalpurposes. You may wish to consult your attorney or tax adviser regarding issues raised in this publication.