In part 2 of this year end series on the Omnibus Appropriations Act we cover extensions of a number of other expiring tax breaks, though in most instances only through 2019 or 2016. Highlights include:


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New Tax Law: What You Need to Know (Part 2)

Mon Dec 28, 2015

In part 2 of this year end series on the Omnibus Appropriations Act we cover extensions of a number of other expiring tax breaks, though in most instances only through 2019 or 2016. Highlights include:

Extension of the Work Opportunity Tax Credit. Employers may elect this tax credit when hiring employees from one of nine targeted groups. The idea is to provide a special incentive to employers to hire certain eligible workers.

Targeted worker categories include individuals receiving benefits under the Temporary Assistance for Needy Families (TANF) program; qualified veterans; qualified ex-felons; vocational rehabilitation referrals; qualified SSI recipients; and individuals receiving assistance under food and nutrition programs.

Generally employers qualify for a tax credit of 40 percent of first-year wages up to $6,000 paid to individuals hired from these targeted groups. The maximum annual tax credit per employee is therefore $2,400.

The new tax law provision extends this employer tax credit until December 31, 2019 and adds as a targeted group qualified long-term unemployment recipients. The cost is $9 billion.

Suspension of the medical device excise tax. The Affordable Care Act imposed a 2.3 percent tax on the sale of medical devices intended for the diagnosis, treatment, cure or prevention of diseases.  The medical device excise tax was effective for tax years beginning January 2013 and was intended to finance subsidies to help people pay premiums for coverage bought on federal or state exchanges. The new law suspends this tax for two years, i.e., for 2016 and 2017. The estimated revenue loss is $4 billion.

In many ways, the $688 billion tax cut “extenders” legislation President Obama signed into law last week is a gigantic holiday bonus for all taxpayers, individuals and businesses alike. In extending the additional child tax credit, the Earned Income Tax Credit, the Work Opportunity Tax Credit, the college tuition American Opportunity Tax Credit and other provisions, the new law offers special assistance to lower and middle income taxpayers.

Business taxpayers are also helped, especially by the now-permanent nature of the research tax credit, extension of certain bonus depreciation rules and other provisions targeting specific sectors like suspension of the medical devices excise tax.

And tax planning will be made much easier by permanent and multi-year extensions of key provisions. The annual cliffhanger suspense of “will they or won’t they” extend tax breaks was a sad commentary on Washington dysfunction.

However, like Ralphie’s Red Ryder B.B.-Gun present in the 1983 holiday classic, A Christmas Story, this tax cut gift also carries a risk: since there are no revenue raising offsets, the new tax law adds $688 billion over ten years to the already gargantuan U.S. government debt, which now stands at $13 trillion.

Indeed, the nonpartisan Committee for a Responsible Federal Budget estimates that this tax cut package could add “more than $2 trillion to the debt over twenty years.”

In this holiday season taxpayers are happy Congress and the President reached agreement on a bipartisan basis to extend all these tax cuts and avoid another last-minute government shutdown. But we have to wonder not only whatever happened to fiscal responsibility but when will all this debt have to be repaid—and by whom?For details on permanent extensions contained in the Omnibus Appropriations Act, see Part 1 of this series.

Note: This blog is intended for educational purposes only and should not be construed as offering tax advice.