Homebuyer Credit Closing Deadline Extended

The Senate on Wednesday approved an extension of the closing deadline for people who qualify for one of the homebuyer tax credits. Yesterday (June 30) had been the original closing deadline, but the deadline has now been extended through September 30.

The homebuyer credits provide a tax credit of up to $8,000 for first-time homebuyers, and $6,500 for "long-time homeowners" who buy a new house.

Will My Health Insurance Be Taxable?????

I saw one of my clients yesterday, and he asked me whether the rumor is true that the government is going to start taxing people on health insurance provided by their employers. The answer to that question is, NO.

My client is right that there is a rumor going around about this, including one of those wonderful "chain" e-mails that breathlessly states that starting in 2011, you'll be taxed on employer-provided health insurance and that you need to forward the e-mail on to all your friends.

As with most rumors like this, there is a small grain of truth here. The health care bill passed in the spring does indeed impose an excise tax on employer-provided health insurance (this is the so-called "Cadillac Tax" that you may have heard of). Here are the facts about this excise tax:

1. The tax starts in 2018, not 2011
2. The tax applies only to employer-provided health insurance that exceeds $27,500/year and is imposed on the insurance company, not on you
3. It is true that the value of your emloyer-provided health insurance will be reported on your W-2, but that's all -- it's reported on your W-2 but it's not a taxable item to you; it will be shown for reporting purposes only

Snopes.com provides more information:
http://www.snopes.com/politics/taxes/hr3590.asp

Excise Tax on Tanning Services Starts July 1

A 10% excise tax on tanning services starts July 1. The IRS today released regulations about the tax, which will be assessed in a similar fashion to a sales tax. The provider of the tanning service will have to submit the excise tax to the IRS quarterly, which means an increased cost to the consumer.

The tax only applies to ultraviolet tanning services; "spray-on" tanning and tanning lotions are not subject to the excise tax. The regulations provide exceptions for licensed medical professionals who use ultraviolet lights as part of medical treatment, and for fitness centers that provide tanning as an incidental cost of membership.

The affect on your pocketbook will be to add 10% to your current tanning cost. So if a tanning fee is $20, you'll be paying an additional $2 in excise tax starting July 1.

This excise tax is part of the health care reform bill that Congress passed in the spring. Officials estimate that the tax could raise $2.7 billion of revenue over the next 10 years.

IRS Ruling -- What Does it Mean for Iowa Same-Sex Couples?

As I posted earlier, the IRS recently issued three rulings – a “private letter ruling” and two “CCAs” (CCA = Chief Counsel Advice) that give same-sex couples in California somewhat equal treatment to opposite-sex married couples when filing federal tax returns. You may be wondering how this will affect same-sex married couples in Iowa. Here are the basics, followed by more detail:

• The rulings allow Registered Domestic Partners (RDPs) in California to calculate their income in the same manner as opposite-sex married couples under “community property” rules (California is a “community property” state).


• The rulings do NOT allow RDPs to file federal returns with a filing status of “married filing jointly” or “married filing separately.”


• The rulings do not change the federal tax situation of Iowa same-sex couples because Iowa is not a community property state.

Here are some specifics about the ruling:

What the Heck are “Private Letter Rulings” and "CCAs"?
“CCA” stands for “Chief Counsel Advice” and refers to advice given by the IRS’s chief legal advisor (the “Chief Counsel”).

Private letter rulings are issued by the IRS in response to a taxpayer’s request for guidance. Technically, the ruling is only binding between the IRS and the taxpayer who requested the ruling. Meaning, private letter rulings are not precedent-setting. However, this particular private letter ruling, combined with the two memos from Chief Counsel, do seem to set precedent for RDPs in California.

What are “Community Property” laws?
For federal tax purposes, if a married couple in a community property state files “married filing separately” on their federal returns, each spouse must share equally in the other’s income and deductions. There are 9 states that follow community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Example:
Ronnie and Johnnie, an opposite-sex married couple, live in a community property state. Ronnie earns $60,000 in wages while Johnnie earns $40,000 in wages. They decide to file separate federal returns. On their separate returns, each will report $50,000 of income.

In the past, the IRS has said that community property rules did not apply to RDPs for federal tax purposes. So in the “Ronnie and Johnnie” example, if they were an RDP, they would each only report their own income on their individual returns, rather than splitting it between them.

What These IRS Rulings Do:
These rulings extend community property rules to RDPs for purposes of calculating federal income and deductions. So if “Ronnie and Johnnie” are an RDP, they can now calculate their income based on community property rules. In our example, they would each report $50,000 in income.

What the Rulings Do NOT Do:
It is very important to note that the rulings still do NOT allow RDPs to file as “married filing jointly” or “married filing separately. The only allowable filing statuses are “single” or “head of household.”

Affect on Iowa Same-Sex Married Couples:
Iowa is not a community property state, and the rulings do not deal with the issue of filing statuses. Therefore, it really has no affect on same-sex couples in Iowa. However, the rulings can be seen as a positive step toward tax equality for same-sex couples.

IRS Private Letter Ruling on Same-Sex Couples in California

The IRS recently issued a "private letter ruling" that affects same-sex married couples in California. Read more here: http://online.wsj.com/article/SB10001424052748704080104575286931017169308.html.

What affect does this have on same-sex married couples in Iowa? It really won't have much of an affect, because this ruling deals with "community property" rules. Iowa is not a community property state. I'll post a more thorough analysis of the ruling soon.