Wednesday, November 11, 2015

New Jersey's tax Burden

New Jersey Debt

new jersey debtThe state of New Jersey now has the highest debt burden per taxpayer in the U.S., according to Truth in Accounting research cited by a NJ 101.5 report. The data collected in the report showed that New Jersey also has the highest property taxes in the nation on average. All told, the report stated that New Jersey has $28.6 billion in assets, with more than $185 billion in liabilities. In turn, according to a report, the state expects to have its local property taxes increase to $540 million by the end of the year, which will break down to approximately $52,300 per taxpayer.
The New Jersey debt burden per individual increased from $36,000 in 2014. Bramnick stated that part of the reason for this increase was due to the staggering liability as a result of the state's unfunded public employee pensions. Bramnick commented that of the $186 billion the state owes, $140 billion is for retirement benefits plans.
Without sufficient assets to cover the mounting debt, New Jersey is facing stiffer tax burdens in the near future, particularly for the high net worth community.

Friday, October 23, 2015

What Taxpayers Need to Know About the FBAR Deadline Change

What Taxpayers Need to Know About the FBAR Deadline Change

FBARAs part of the new highway appropriations bill, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, the deadline for filing Reports of Foreign Bank and Financial Accounts, or FBAR, has been changed to April 15. The new deadline was moved up from June 30 to align with the filing date for individual tax returns, and carries stiff penalties for taxpayers.

Thursday, October 22, 2015

The Social Security Administration Has Announced The Wage Base for Computing the Social Security Tax

The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in will remain at $118,500.

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers—one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).

For 2016, the FICA tax rate for employers is 7.65%—6.2% for OASDI and 1.45% for HI. For 2016, an employee will pay:

  • (a)  6.2% Social Security tax on the first $118,500 of wages (maximum tax is $7,347.00 [6.2% of $118,500]), plus
  • (b)  1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
  • (c)  2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return

For 2016, the self-employment tax imposed on self-employed people is:

  • 12.4% OASDI on the first $118,500 of self-employment income, for a maximum tax of $14,694.00 (12.40% of $118,500); plus
  • 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a separate return),plus
  • 3.8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return).

There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.

Sunday, October 18, 2015


Unfortunately today Identity theft is a common occurrence.

In order to combat identity theft of a person’ s tax refunds, the IRS began issuing IP PINs to eligible taxpayers in Fiscal Year 2011. An IP PIN is a 6-digit number assigned to eligible taxpayers that allows their tax returns/refunds to be processed without delay and helps prevent the misuse of their SSNs on fraudulent Federal income tax returns. For Processing Year 2014, IRS issued over 1.2 million IP PIN notices to taxpayers for use in filing their tax returns.

To get an IP PIN the personal information the taxpayer entered must match the information provided us on the most recent tax return. The IRS uses the following information to verify your identity:

·        Name

·        Social Security Number or Individual Tax ID Number (ITIN)

·        Date of Birth

·        Filing Status

·        Mailing Address

·        Third Party Verification Questions - you must provide answers to questions about personal information such as prior address, mortgage information, etc., that only you should know.

You must also provide the IRS with a valid email address, which we will be confirmed and use to notify the taxpayer if his registration information changes.

Once a taxpayer gets an IP PIN, he must use the IP PIN to confirm his identity on his current federal tax return and any delinquent returns filed during the calendar year. IRS sends a new IP PIN each December by postal mail.

On its website, IRS has discussed various IP PIN issues, including:

Fpor example...Who can get an IP PIN?

A taxpayer can receive an IP PIN if he meets one of the following criteria:

  • He received an  IP PIN last year;
  • He received a CP01A (which provides an IP PIN) or CP01F (which invites the taxpayer to obtain an IP PIN) notice; or
  • He filed his last tax return as a resident of FL, GA, or DC. (FAQ 3)

What happens when a taxpayer receives an IP PIN but doesn't use it on his return?

The answer depends on whether the taxpayer files electronically or on a paper return.

For an electronic return: if IRS sent an IP PIN through Get an IP PIN, but the taxpayer did not use it or he entered it incorrectly, his return will be rejected and he won't be able to e-File his return.

For a paper return: failure to input the IP PIN for the primary taxpayer (when required) on a paper return will mean his return will take longer to process while IRS validates the information.

Must a taxpayer include his dependent's IP PIN on his tax return?

Not at the current time. He will not need to enter an IP PIN for a dependent in order to file his return. However, if the dependent's SSN has been used to file another tax return, the dependent should report the incident to IRS, an identity theft indicator will be placed on the dependent's account, and the dependent may receive an IP PIN prior to the tax season. While this IP PIN doesn't have to be entered to claim the person as a dependent, the IP PIN will prevent anyone else from filing a tax return using the dependent's information as the primary or secondary taxpayer.

Starting Jan. 1, 2016, there will be new rules for the dependent IP PIN. IRS will require the use of IP PINs for all SSNs with an IP PIN requirement, regardless of whether the SSN is entered for a primary, spouse, or dependent/qualifying individual. This requirement applies to the Form 1040 series of returns, Form 2441 (Child and Dependent Care Expenses) and Schedule EIC (Earned Income Credit). Failure to include the IP PIN in any of the required fields will result in the return being rejected. (IP PIN Program Update: Numbers Must be Entered for All IP PIN Holders)


Monday, September 28, 2015

Will the Cadillac Tax Go the Way of the Edsel?

On September 17, Senators Dean Heller (R-NV) and Martin Heinrich (D-NM) introduced the “Middle Class Health Benefits Tax Repeal Act of 2015,” bipartisan legislation that would repeal the IRC 4980 excise tax on high cost employer-sponsored health coverage (the so called “Cadillac tax”). Beginning in 2018, the Cadillac tax, which was added by the Affordable Care Act, would tax employers whose health insurance plans cost more than $10,200 a year for individuals and $27,450 a year for families at 40% of the cost above these limits. The bill is a companion bill to similarly titled H.R. 2050, which was introduced in the House on April 28.

Wednesday, September 9, 2015

the Cadillac Tax Is Coming!

This Article is adapted from a Forbes Article published in February 2014.
The Cadillac Tax was designed to raise revenue for the ACA. Most economists thinking seriously about the depth of our deficit agree that the Employer Sponsored Insurance (ESI) tax subsidy is a significant part of the problem. ESI subsidies date back to the freeze on wage increases during World War II. To offset the freeze, the ESI allowed companies to use pre-tax dollars to pay for generous health benefits tax-free.

The ability to funnel wages into health benefits is not just the purview of the wealthy. State and local government workers often find much of their compensation tied up in health benefits. Governments and many unions use the subsidy to compensate middle-income workers at a lower cost to the employer.

How the Cadillac Tax works

Rather than simply repealing the old tax structure, the Obamacare solution is an additional tax, a penalty imposed on “Cadillac” or very high cost health plans. It calls for a 40% excise tax on employer-sponsored plans spending more than $10,200 per employee (or $27,500 per family). This number includes employer and employee-paid premiums and employer contributions to Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs). There will purportedly be some adjustment for areas where healthcare is more expensive and for employees in high-risk jobs, but the regulations have not yet been promulgated.

The purpose of the Cadillac tax is threefold: to address cost of the ESI, to help finance the Affordable Care Act (ACA), and to reduce employer incentive to overspend on health plans and employee incentive to overuse services encouraged by these high-cost plans.

The Congressional Budget Office (CBO) originally projected the tax would raise $137 billion over the first decade starting in 2013. However, due to effective lobbying by pro-union groups and others, the tax is delayed until 2018. Beyond its role as a funding mechanism, the Cadillac tax could have significant unintended consequences for employees and the health system as a whole.

Based on the plan size defined by the tax, in 2018, about 16% of employer-sponsored plans will be affected. However, if healthcare spending continues to exceed inflation, a greater percentage of plans will qualify as “Cadillac plans”—spending more than $10,200 per employee or $27,500 per family— each year. The tax is tied to the Consumer Price Index (CPI) +1% for the first 2 years of implementation but then just the CPI. If healthcare spending continues to grow at approximately 6% per year (the historic average, though it has grown at a lower rate in recent years), the Cadillac tax will swallow 75% of employer-sponsored plans by 2029.

The Cadillac Tax will change the way employers offer health coverage

First, employers will move toward reducing the cost of plans to avoid the tax, but not to curb overall health care spending.

The most obvious strategy for lowering employer contribution is to pass costs to employees, either as higher employee premiums, higher deductible plans, removing employer contribution to HSAs and FSAs, increasing co-pays and coinsurance, or just decreasing covered services. While these changes may avoid the tax, they will only decrease the healthcare costs of an employer’s work force if the employee then turns around and spends their healthcare dollars wisely. Alternatively, if employees just avoid healthcare they need due to cost, it could result in more expensive hospitalizations and sick days down the road.

Second, “high-cost” plans are not necessarily “benefit-rich” plans. Sicker populations, including the elderly and chronically ill, and populations with more women are simply more expensive to insure. Despite attempts to tailor their plans, employers will not be able to decrease their community rating if they have large numbers of older employers and women. Especially considering the ACA requires more comprehensive coverage for some areas like preventative and obstetrical care, creating a “bare bones” plan is actually antithetical to the rest of the ACA. To dodge this internal inconsistency, workers will likely find themselves in the exchanges. While these workers will still have a health insurance option, if it happens in great numbers it will affect the cost of premiums in the exchanges. In other words, the exchanges will take on the risk and cost of insuring older and sicker workers without the balance of the young-healthy population to share the cost.

Finally, given that state and local employers frequently use benefits to make up for lower salaries, the tax will likely affect wages. This may result in increased salary, but will definitely result in decreased benefits, higher premiums, and more cost sharing. Due to the misalignment of inflation and the cost of healthcare—healthcare costs rise faster than inflation—a subtle whittling of plans each year to avoid the Cadillac tax will eventually lead to an underinsured work force. We are already hearing stories about people taking on higher deductible plans where the deductible exceeds their ability to pay. In other words, the Affordable Care Act will result in unaffordable plans and an underinsured workforce.

The tax will stimulate private-sector innovation

On the other hand, the Cadillac tax could have a positive impact on the pricing of healthcare if employers take into account the long-term effects of their immediate maneuvers to avoid the tax. Rather than scheming to avoid the tax at all costs, employers can accept some portion of increased tax while instituting cost-sharing mechanisms that use consumer shopping and market forces to drive down overall healthcare prices. For example, employers can employ strategies like referenced-based pricing and consolidation of services with specific providers to allow for lower contracted costs. Creative solutions like these will actually decrease the cost of care, not just move money around on the balance sheet.

Tuesday, August 18, 2015

Estates and Beneficiaries: Consistent Basis Reporting

Congress passed and the President signed H.R. 3236, 114th Cong., 1st Sess. into law on July 31, 2015), the Highway and Transportation Funding Act (“the ACT”), which provides three months funding of federal highway and transit programs, and includes revenue offsets The act now requires that any beneficiary who receives property from an estate must not treat the property received as having a basis higher than the basis reported by the estate for estate tax purposes.
The Act also requires administrators of estates that are required to file an estate tax return to provide information returns to the IRS and payee statements to any beneficiary who acquires an interest in property from the estate. The required statements must identify the value of each interest in property that was reported in the estate tax return.

These new basis reporting rules apply to property included in an estate tax return that is filed after the Act’s date of enactment-July 31, 2015..

This new tax law change is yet another reason to file the Form 706 even though not required since consistency of basis reporting is in the best interest of the administrator of the estate and the beneficiary.