Overview

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the Tax Relief Act). The Act is a multi-billion dollar tax cut package that extends certain tax provisions known as the “Bush tax cuts.”

While many provisions in the Tax Relief Act relate specifically to individual as taxpayers, the Tax Relief Act also contains provisions that affect employers and employees. Below are highlights of the Tax Relief Act that may be of interest to employers from an employee benefits and human resources management perspective.

Payroll Tax Cut

The tax relief provides a one year reduction in the employee portion of the Social Security portion of payroll taxes (OASDI). For calendar year 2011, the employee rate is reduced from 6.2 percent to 4.2 percent, up to the taxable wage base of $106,800. The employer portion did not change and remains at 6.2 percent. The self-employment tax rate for self-employed individuals is reduced for 2011 as well, from 12.4 percent to 10.4 percent on net business income.

Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than January 31, 2011. Consult with your accountant or IRS resources to determine appropriate implementation procedures. Employers have until March 31, 2011 to reimburse workers for any over-withholding earlier in the year.

Employer-Provided Child Care

Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), employers that provide child care facilities for employees were eligible for a tax credit equal to 25 percent of their qualified expenses for the child care plus 10 percent of their qualified expenses for resource and referral services. The maximum amount of expenses that could be taken into account was $150,000. The Tax Relief Act extended the availability of the credit through December 31, 2012.

Employer-Provided Educational Assistance

The Tax Relief Act also extended EGTRRA’s provisions regarding employer-provided educational assistance for two years, through December 31, 2012. These rules permit an employee to receive up to $5,250 per year in tax-free educational assistance from his or her employer, including graduate school expenses. The employer can deduct up to $5,250 per year for an employee’s qualified educational expenses.

Transit and Parking Benefits

Employers may provide transit and parking fringe benefits of up to $230 tax-free through December 31, 2011. These benefits include transit passes, vanpooling and employer-provided parking.

Adoption Assistance

Individuals who adopt a child may be eligible for a tax credit and may be able to exclude employer-provided adoption assistance from their income. The new law extends the increased credit and income exclusion amounts for an additional year, through December 31, 2012. However, the credit and exclusion amount are phased out for high-income individuals.

Work Opportunity Tax Credit

The Tax Relief Act extends the Work Opportunity Tax Credit, which was de-signed to encourage employers to hire individuals from certain groups that have faced obstacles in obtaining employment, such as certain veterans and Temporary Assistance to Needy Families (TANF) recipients. The credit is now available for individuals who begin employment through December 31, 2011. However, the new law does not extend the credit beyond 2010 for the two newest targeted groups – unemployed veterans and disconnected youth.

Extension of Federal Unemployment Benefits

The new law provides an extension of federal unemployment benefits for an additional 13 months, through December 2011. The current maximum time period for receiving benefits – 99 weeks – remains in effect.

Conclusion

The Tax Relief Act of 2010 extends and broadens a number of valuable tax cuts for employers and employees alike. If your firm is not already leveraging these incentives to enhance your employee recruiting, retention and reward strategies, consider doing so in 2011. As with all tax-related issues, consult with a qualified CPA before implementing such plans.

This notice is provided as information only and should not be considered a legal opinion. If you have questions about this Client Advisory, please contact Seacrest Partners at 912-544-1900.