Home > Regions > North America > Tax Alert: Overview of the proposed American Jobs Act

Tax Alert: Overview of the proposed American Jobs Act

On Thursday, September 8, President Obama announced his proposal for a tax incentive-based program for creating more jobs — the American Jobs Act. This plan focuses on new and extended reductions in payroll taxes for both employees and employers, along with a separate credit for hiring the unemployed. The 100% write off for certain capital expenditures in effect for 2011 would also be extended through 2012 under this proposal. While no specific provisions were discussed with respect to how these benefits would be paid for, the President indicated that the revenue offsets would include tax increases for higher-income taxpayers and a repeal of other targeted corporate tax breaks.

Payroll taxes

The proposals relating to the reduction of payroll taxes were broad. Last year, a reduction in the employee portion of Social Security taxes from 6.2% to 4.2% was implemented for 2011. The President proposed extending this tax break through 2012, and reducing the employee’s portion even lower, to 3.1%. A similar reduction would likely apply to self-employment taxes.

Benefits for employers

The President’s proposal also provides two significant benefits for employers. First, the employer’s share of Social Security taxes would also be reduced to 3.1% for the first $5 million in wages. This translates to a potential benefit of $155,000 for the employer. In addition, there would be a complete elimination of the employer’s portion of the Social Security tax — from 6.2% to zero — on the amount of payroll that represents an increase from the prior year, up to a $50 million cap.

Employer tax credit

Finally, the President proposed providing businesses with a tax credit for hiring:

  • Workers who have been unemployed for at least six months – $4,000
  • Veterans who have been unemployed for at least six months – $5,600
  • Veterans with disabilities – $9,600

As proposals, there are no detailed regulations available to determine the exact parameters of these benefits. What is clear is that the administration is focused on tax benefits that it believes will directly lead to increased employment opportunities. Furthermore, wealthy individuals and corporations that take advantage of other specific tax breaks will likely be the source of any required revenue offsets.

For more information, please contact:

Mark D. Klimek
216.348.5453
mklimek@mcdonaldhopkins.com

or any of our tax attorneys by clicking on the Tax Practice link below:

Tax Practice

Tax planning needs to be strategic. We consult with businesses at all stages of their development, from the initial choice of entity, through acquisition and other growth transactions, to business succession planning, and dispositions. Our tax advisors also work closely with clients on individual tax planning. Our attorneys provide businesses and individuals with comprehensive counseling in all areas of federal, state and local taxation.

Carl J. Grassi, President
600 Superior Avenue, East, Suite 2100, Cleveland, Ohio 44114
Chicago
312.280.0111
Fax: 312.280.8232
Cleveland
216.348.5400
Fax: 216.348.5474
Columbus
614.458.0025
Fax: 614.458.0028
Detroit
248.646.5070
Fax: 248.646.5075
Miami
305.714.9452
Fax: 305.714.9453
West Palm Beach
561.472.2121
Fax: 561.472.2122
IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments), was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding any penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction matter addressed herein.

© 2011 McDonald Hopkins LLC All Rights Reserved. This Alert is designed to provide current information for our clients, friends and their advisors regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action.