Death and Taxes: House Bill Eliminates “Death” Tax in 2024

On November 2, 2017, the U.S. House of Representatives’ Ways and Means Committee released its proposal for tax reform via the Tax Cuts and Jobs Act. The House’s draft legislation contains a number of provisions that, if enacted, would significantly change the wealth transfer landscape, including the total repeal of the estate and generation-skipping transfer taxes as of January 1, 2024.

Under the proposal, commencing on January 1, 2018, the individual lifetime gift and estate tax exemption amount will be doubled to $10 million ($20 million for married couples), indexed for inflation—$11.2 million per person in 2018 ($22.4 million for married couples). This increase in the exemption amount also applies to the generation-skipping transfer tax.

The draft legislation calls for a total repeal of the estate and generation-skipping transfer taxes as of January 1, 2024, while preserving the ability of beneficiaries to obtain a basis adjustment as to inherited property. Although the gift tax is set to remain in place, a reduction in the rate from 40% to 35% is provided for. Similarly, the annual exclusion—scheduled to increase to $15,000 per individual in 2018 ($30,000 for married couples who elect to split their gifts)—looks certain to survive.

This post was written by the Tax, Estate Planning & Administration  of Jones Walker LLP., © 2017
For more Family, Estates & Trusts legal analysis, go to The National Law Review

Key Tax Changes in the American Health Care Act

The American Health Care Act (“AHCA”), passed by the House of Representatives on May 4, 2017, repeals many of the taxes added by the Affordable Care Act (“ACA”) and makes changes to other tax rules.  Some of the notable changes proposed to be made to the Internal Revenue Code are:

            1. The individual mandate to maintain health insurance and the employer mandate to offer health insurance remain in the Code, but the taxes are “zeroed out” effective retroactively to 2016.

            2. The following taxes, fees, credits and limitations are repealed as of the year shown below:

·         The net investment income tax (NIIT) (2017)

·         The 0.9% additional Medicare tax (2023)

·         The small employer health insurance credit (2020)

·         The $2500 limitation on contributions to a health flexible spending account (FSA) (2017)

·         The annual fee on branded prescription drug sales (2017)

·         The medical device excise tax (2017)

·         The annual fee on health insurance providers (2017)

·         The elimination of a deduction for expenses allocable to the Medicare Part D subsidy (2017)

·         The 10% tanning salon tax (June 30, 2017)

            3.         The “Cadillac” tax on high cost health plans is delayed until 2026.

            4.         Individuals may be reimbursed for over-the-counter medications under a health savings account (HSA), health FSA or a health reimbursement arrangement (HRA) (2017).

            5.         The penalty tax on withdrawals from an HSA not used for a qualified medical expense is reduced from 20% to 10% (2017).

6.         The bill would replace the current ACA premium tax credit with a new refundable, advanceable tax credit effective January 1, 2020.  The credit could be applied toward the cost of any eligible health insurance coverage, whether purchased on or off the Exchange.  The credit is age-based as follows:

Age

Annual Credit

Under 30

$2,000

30 – 40

$2,500

40 – 50

$3,000

50 – 60

$3,500

60 and over

$4,000

The maximum credit for a family is $14,000. The credit is adjusted each year by CPI + 1%.

The credit is phased out depending on the individual’s modified adjusted gross income (MAGI) for the year.  It begins phasing out for an individual with income of $75,000 ($150,000 for joint filers) by $100 for every $1,000 in income above those thresholds.  The MAGI dollar limitations are also indexed for inflation beginning in 2021.              To be eligible to claim the credit, the individual must be covered by “eligible health insurance,” not be eligible for “other specified coverage” (including employer coverage or a government sponsored health program) and be a U.S. citizen or a qualified alien.

7.         The bill would make the following changes to health savings accounts, effective in 2018:

§  The maximum contribution to an HSA would be increased to the out-of-pocket maximum (in 2017, $6,550 for self-only and $13,100 for family coverage).  Under current law, HSA contributions are limited to $3,400 for self-only and $6,750 for family coverage.
§  Both spouses could make a “catch-up” contribution to the same HSA.  Under current law, each spouse must have his or her own HSA.
§  If an HSA is established within 60 days after coverage under a high deductible plan begins, the individual could be reimbursed for medical expenses incurred within that 60-day period.  Under current law, an individual cannot be reimbursed for any expense incurred before the HSA is established.

The bill now moves to the Senate where significant changes are expected.

This post was written by Cynthia A. Moore of  Dickinson Wright PLLC.

“Do You Want Liability With That?” The NLRB McDonald’s Decision that could undermine the Franchise Business Model (Part II)

 

McBrayer NEW logo 1-10-13

 

Yesterday’s post discussed the decision of NLRB’s General Counsel to hold McDonald’s Corp. jointly responsible with its franchise owners for workers’ labor complaints. The decision, if allowed to stand, could shake up the decades-old fast-food franchise system, but it does not stop there. The joint employer doctrine can be applied not only to fast food franchises and franchise arrangements in other industries, but also to other employment arrangements, such as subcontracting or outsourcing.

This decision could also impact the pricing of goods and services, as franchisors would likely need to up costs to offset the new potential liability. Everything from taxes to Affordable Care Act requirements could be affected if the decision stands.

If you are a franchisor and are currently in what could be determined to be a joint employer relationship, consider taking steps to further separate and distinguish your role from that of your franchisee. While franchisors should always take reasonable measures to ensure that franchisees are in compliance with applicable federal and state employment laws, they should take care to not wield such force over them to give the appearance of a joint-employer relationship.

We will be following the NLRB decision and keep you updated as the issue progresses.

ARTICLE BY

 
OF 

Same Sex Marriages: Are You Filing Your Taxes Properly?

Poyner Spruill

 

In late 2013, I met with my first same sex couple clients since the U.S. Supreme Court overruled the Defense of Marriage Act (DOMA) last year.  If you recall, DOMA  was the federal law barring the federal government from recognizing same sex marriages legalized by states.  It was ruled unconstitutional by the U.S. Supreme Court as violative of the Fifth Amendment.  The IRS issued a statement on August 29, 2013 that provided that same sex couples legally married in a jurisdiction that recognizes their marriage would be treated as married for federal tax purposes regardless of the laws of their domiciliary state.  As a result, same sex couples married in a state that legally recognizes their marriage will be entitled to the estate and gift tax marital deduction, and they must also file their federal income tax returns with the status of married or married filing separately.  (The Department of Labor issued a similar statement in Technical Release No. 2013-4, meaning that for purposes of ERISA, legally married couples are treated as married, regardless of the laws of their domiciliary state.)

North Carolina does not recognize same sex marriage as valid, so for purposes of North Carolina taxes, where does that leave our North Carolina-residing same sex couple clients that were legally married in another state?  NCDOR directive PD-13-1 provides that “Because North Carolina does not recognize same-sex marriage as valid… individuals who enter into a same-sex marriage in another state cannot file a North Carolina income tax return using the filing status of married. Such individuals who file a federal income tax return as married must each complete a separate pro forma federal return for North Carolina purposes with the filing status of single  to determine each individual’s proper adjusted gross income, deductions and tax credits allowed under the Code for the filing status used for North Carolina purposes.”

My clients are considering getting married in a state that recognizes same sex marriage, but they want to understand the legal implications for them if they do.  They are concerned about the “marriage penalty” for federal income tax purposes and the complexity of having different laws and rules for federal and  state purposes. They do not have an estate tax problem, so the availability of the unlimited estate tax marital deduction is of no consequence to them. However, they are considering retitling the house currently owned by one of them into their joint names.  I cautioned them that such transfer would constitute a taxable gift to the extent the value of the interest transferred exceeded the donor owner’s $14,000 annual exclusion. In fact, one partner’s use of funds for the benefit of the other in excess of the donor-partner’s annual exclusion in any year will require the donor-partner to file a gift tax return. If they are legally married, there would be no taxable gifts in those circumstances due to the unlimited marital gift tax deduction. My clients each have a 401(k) plan, so if they were to marry, under ERISA, they must be designated beneficiary of each other’s accounts unless the spouse waives that right.

As an advisor, if you have same sex couple clients who have been married in a state that recognizes same sex marriage and they have paid taxes or used exemptions (income, gift or estate tax) based on separate status, you may consider whether they can and should file amended returns based on married filing status to recoup taxes or exemptions. And they should be advised to revisit their beneficiary designations and their estate planning documents if they have not done so already.

Article by:

Westray B. Veasey

Of:

Poyner Spruill LLP