One of the tax cuts I talked about in ‘Obama’s Proposed Tax Cuts Total $300 Billion’ was the payroll tax cut for low to mid-income workers.

Since this is the tax break that will affect most American’s I wanted to share some more details on what is being called Obama’s paycheck bonus (the official name, right now anyway, is the ‘Make Work Pay Credit’.

The details are still being hammered out, but basically it looks like the tax plan will include a payroll tax break that will mean anywhere from $83 to $166 extra per paycheck for workers, during the first quarter of the year.

By reducing payroll taxes, Obama is getting money into the hands of the greatest number of people as quickly as possible.  The hope is that taxpayers will spend this money to help boost the economy.

This tax credit will essentially work out to be $500 a year for individuals and $1,000 for couples, with the full credit being limited to those making $75,000 or less ($150,000 or less for married couples).  People who earn between $75,000 and $85,000 will get a partial credit (the phaseout range for couples is $150,000 to $170,000).

In addition, this will be a refundable tax credit, which means you don’t have to actually owe any tax liability to receive the credit.  This means that lower income families who typically qualify for the child tax credit or earned income credit (and thus may not have any tax liability after the credits are calculated) will still receive the payroll tax credit.

Breaking the numbers down, workers who get paid every two weeks can expect to receive an extra $19.23 per paycheck.  However, it depends on the timing of the tax break.  The tax credit could be implemented during the first quarter of the year (instead of being spread out over the entire year), which would mean larger paychecks during the first part of the year (then normal paychecks once the full credit is received).  According to economists, the earlier American’s receive the credit, the greater the potential impact on the economy, so this it’s very possible we’ll see this tax credit early in 2009.

Remember, this is just a proposal right now, so expect changes before this tax package is finalized.

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• Obama’s Proposed Tax Cuts Total $300 Billion
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In an earlier post, I asked ‘How Will Obama’s Tax Plan Affect Self Employed Americans?’.  Well, more details are emerging as Obama proposes $300 Billion in tax cuts.

Presidential Elect Obama is working with Congress on a tax cut proposal that would make up about 40% of a $775 billion economic stimulus package.

Cuts would be aimed at both individuals and businesses.  At the moment, these are just proposals, but here’s what’s being discussed so far:

• The largest piece of the tax relief package is a payroll tax break of $500 for individuals and $1,000 for couples aimed at low- and moderate-income workers.  I’m wondering if this will also apply to self employed people, but am unsure of the answer so far.
• Relief for businesses include a provision that would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years.  While businesses would have been able to claim most of the tax write-offs on future tax returns anyway, the proposal accelerates those write-offs to make them available in the current tax season.  This will help companies who are experiencing cash flow problems due to credit being unavailable.
• The Obama plan also proposes to increase the Section 179 deduction up to $250,000 in 2009 and 2010. Currently, the limit is $175,000.  This probably won’t help most small businesses, but those that are expanding or need new equipment will benefit.
• Finally, businesses that create jobs here in the US or avoid future layoffs would receive a tax credit.  Hopefully this will reduce the amount that unemployment is expected to rise in 2009.

While I like the idea of the payroll tax credit, it really needs to apply to self employed people as well.  I’ve heard rumors that self employed people may get to reduce their 1st quarter estimated tax payment, and will confirm or deny as soon as more details become available.

Remember these are just proposals right now.  There will be lots of debate and changes before the final bill is approved.

Related Posts:

• More About Obama’s Proposed ‘Paycheck Bonus’
• Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement
• Year End Tax Tips

Self employed taxpayers get the honor of paying the self employment tax on top of their regular income tax.  This can be quite a burden, especially for new business owners.

There has been some indication that there will be tax relief for small business owners in President-Elect Obama’s new tax plan.

So how will the new tax plan affect you, as a self employed individual (or couple)?

According to BarackObama.com, the new tax plan will include:

A $1,000 “Making Work Pay” Tax Credit. For 95 percent of workers and their families—150 million workers overall—the “Making Work Pay” credit will provide a refundable tax cut of $500 for workers or $1,000 for working couples. This credit will benefit over 15 million self employed workers and for 10 million low-income Americans, will completely eliminate their federal income taxes.

Since this is a refundable tax credit, this credit will help reduce your self employment tax in addition to your regular tax.  This is good news, as many of the tax credits available now are non-refundable, and therefore don’t help reduce the self employment tax, which is the largest burden for many sole proprietors.

Expanding Retirement Savings Incentives. To increase retirement security, Barack Obama will ensure that every American worker has the option of saving in an easy, automatic pension account and will expand the existing Savers Credit to match 50 percent of the first $1,000 of savings for families that earn under $75,000. He will also make the Savers Credit fully refundable.

This is also good for self employed people, since self employed people generally give up 401K plans and company matches when they start their own business.  This will give self employed people greater incentive to start their own retirement plans.

Health Care Tax Credits. Obama’s health plan centers around tax credits that, together with his other proposals to expand pooling options and ease enrollment, will ensure that health insurance is available and affordable for all families.

I can’t believe I’m admitting this, but when I first started my business, I did not have health insurance.  I chose to go without for about six months while I worked to build my business.  I’m not alone in this regard; I know many, many self employed individuals (and families) who don’t have health insurance because it’s just too expensive to purchase it on their own (another employer sponsored benefit given up to pursue the American Dream).  So, while I’m a little concerned about “expanding pooling options” and some of the other changes that have been discussed, I’m all for a tax credit that would make health insurance more affordable for those who don’t have it through an employer.

Eliminating Capital Gains Taxes for Entrepreneurs and Investors in Small Business. Barack Obama understands that small businesses are the engines of our economy, and he will eliminate all capital gains taxes on investments in small and start up firms.

I don’t understand this one at all… As a small business owner, my biggest concern is self employment and income tax, not capital gains tax.  If any Obama tax advisors just happen to be reading this, we need deductions and credits to reduce our self employment and income tax, not capital gains tax!

Cutting Corporate Tax Rates for Firms that Create Jobs in America. Barack Obama will repeal tax breaks and loopholes that reward corporations that retain their earnings overseas, and will use those savings to lower corporate tax rates for companies that expand or start operations in the United States.

Not much to say about this one… any tax cut that will help keep jobs in America is good for the United States.

Offering a Small Business Healthcare Tax Credit: To help small businesses compete in the global economy while still providing quality health insurance, Barack Obama will offer a new refundable 50 percent health tax credit on employee premiums paid by employers. His comprehensive healthcare plan will relieve health costs for all firms by bringing down national healthcare costs by $2,500 per family, annually.

Given the number of companies that are cutting back or eliminating health care benefits for their employees, this tax credit is definitely a positive.  Hopefully the definition of “employee” includes owner-employees in S corporations.  That would be sweet!

Well, I hope you got some positive things out of this post.  Just about every blog post and article I read regarding Obama’s tax plan was negative, but after reading the details of the Obama tax plan, I can see at least a few positive changes for small business owners in the tax plan that Obama proposes.

Related Posts:

• More About Obama’s Proposed ‘Paycheck Bonus’
• Obama’s Proposed Tax Cuts Total $300 Billion
• The Obama Tax Plan Will Cut Taxes for 95 Percent of American Workers

Now that the election is over, our new President-Elect has a lot of work ahead of him.  I don’t envy him his new job, even if he does get to live in the most famous house in America!

One of the biggest challenges will be the economy, specifically taxes.  A lot was said during the election about tax rebates and raising taxes on the middle class, especially after “Joe the Plumber” asked the fateful question that made him famous (well, semi-famous).

There is a lot of fear that Obama will raise taxes for the middle class Americans, but according to BarackObama.com, President-Elect Obama will actually cut taxes for 95 percent of workers and their families, with a tax cut of $500 for working individuals (or $1,000 for working couples).

Here are some key points about the tax plan from BarackObama.com:

Obama’s Comprehensive Tax Policy Plan for America will:

* Cut taxes for 95 percent of workers and their families with a tax cut of $500 for workers or $1,000 for working couples.

* Provide generous tax cuts for low- and middle-income seniors, homeowners, the uninsured, and families sending a child to college or looking to save and accumulate wealth.

* Eliminate capital gains taxes for small businesses, cut corporate taxes for firms that invest and create jobs in the United States, and provide tax credits to reduce the cost of health-care and to reward investments in innovation.

* Dramatically simplify taxes by consolidating existing tax credits, eliminating the need for millions of senior citizens to file tax forms, and enabling as many as 40 million middle-class Americans to do their own taxes in less than five minutes without an accountant.

Under the Obama Plan:

* Middle class families will see their taxes cut – and no family making less than $250,000 will see their taxes increase. The typical middle class family will receive well over $1,000 in tax relief under the Obama plan, and will pay tax rates that are 20% lower than they faced under President Reagan. According to the Tax Policy Center, the Obama plan provides three times as much tax relief for middle class families as the McCain plan.

* Families making more than $250,000 will pay either the same or lower tax rates than they paid in the 1990s. Obama will ask the wealthiest 2% of families to give back a portion of the tax cuts they have received over the past eight years to ensure we are restoring fairness and returning to fiscal responsibility. But no family will pay higher tax rates than they would have paid in the 1990s. In fact, dividend rates would be 39 percent lower than what President Bush proposed in his 2001 tax cut.

* Obama’s plan will cut taxes overall, reducing revenues to below the levels that prevailed under Ronald Reagan (less than 18.2 percent of GDP). The Obama tax plan is a net tax cut – his tax relief for middle class families is larger than the revenue raised by his tax changes for families over $250,000. Coupled with his commitment to cut unnecessary spending, Obama will pay for this tax relief while bringing down the budget deficit.

For more details, please read the full Obama tax plan.

Related Posts:

• Final Tax Estimate for 2008 Approaching Quickly
• More About Obama’s Proposed ‘Paycheck Bonus’
• Obama’s Proposed Tax Cuts Total $300 Billion