The other day I stopped at a cafe to visit with an old friend.  I went to the counter and ordered a soda and the woman behind the counter said, "You know that the government is going to put a 40% tax on sodas to fight obesity?"  My friend responded that it was only a 4% tax, and then the two of them got into a heated discussion of what the tax was (4% or 40%), and how much tax was needed to make people stop drinking soda (definitely 40%.)  I simply stood there like a lump thinking, "Did she just call me fat?"

 

But what about the new health care bill anyway?  Why am I writing about it in my tax newsletter?  Well, the new bill will create about $438 billion dollars of tax changes over the next eight years.  There's no way I can cram all of them into one newsletter.  What I will try to do is break it down into little (hopefully understandable) pieces over the next few months. 

 

So, the soda tax?  That hasn't even passed yet.  What I can tell you is that coming July 1st, there will be a 10% excise tax on tanning.  So, what the heck is an excise tax?   It's different from a sales tax in that an excise tax is usually rolled into the price of a product.  For example, let's say your favorite tanning parlor charges $20 for a session.  Under the new rules, they would charge $22 a session.  It doesn't really feel any different than a sales tax to you, the buyer.  You're still paying more for the product, it's just that the reporting requirements are different. 

 

One thing about excise taxes is that they are usually applied to specific goods, such as alcohol and cigarettes.  They're often called "sin" taxes (and I'm sure that the tanning booth people are thrilled about that.)   Some products, like cigarettes, have excise taxes and sales taxes attached to them.    And that's the end of today's civics lesson. 

    If you have employees, you need to know that the Hiring Incentives to Restore Employment Act (HIRE) was enacted on March 18.  

 

HIRE does two things.  First, it provides a payroll tax exemption for the employer's share of social security taxes on qualified employees from March 19 through December 31 of 2010.

 

Second, if you hang on to that qualified employee for a year, you can claim a tax credit of 6.2% of his wages, up to $1,000.

 

So what's a "qualified" employee?  (Besides someone who can actually do the job, right?  I mean "qualified" by IRS guidelines.)  A qualified employee starts work after February 3, 2010 and before January 1, 2011.  He must be unemployed (or employed for less than 40 hours) during a 60 day period ending on the date he starts work.  (We are talking about the IRS, we can't just start work on the first and end on the last day of the month like normal people.)

 

(I made that part big because people have called me about these issues.  I'm pretty surprised about being able to rehire a laid off employee.) 

 

So what documentation do you need to prove that your new employee has been out of work for 60 days?  The IRS will have a form for it.  Right now, it's only a draft, but here's a link to the  draft of the new form W11.  There's no word yet on what to do with the form once you have your employee sign it.  I'm guessing that you won't be required to send it in, but rather keep it on file along with the other employment forms.

New form W11 

 

    If you'd like more information about HIRE, the following link will take you to the IRS website with covers all sorts of questions on the issue.

HIRE FAQs 

 

 

Deadlines:  Partnership and Sole Proprietor returns are due April 15. Remember to pay your first quarter estimated tax payments if you owe them.   First quarter 941 payroll tax froms are due April 30th.