House Tax-Writing Committee Unveils Federal Tax Relief and Tax Code Reform Legislation
In early October, the President and the Republican-led Congress reached consensus on a framework to reform the federal income tax code. Since then, the Congressional tax-writing committees – the House Committee on Ways and Means and the Senate Committee on Finance – have been working to transform this framework into legislation.
Last Thursday, the United States House Ways and Committee released their federal tax relief and reform proposal which they have dubbed the “Tax Cuts and Jobs Act” (TCJA). Outlined below is a brief summary of the provisions which are most likely to impact WIB members.
Tax Brackets and Income Thresholds – the TCJA consolidates the seven federal individual income tax brackets into five brackets and establishes new income thresholds for each new bracket.
0% $0 – $12,000 (single); $0 – $24,000 (married)
12% up to $45,000 (single); up to $90,000 (married)
25% $45,000 – $200,000 (single); $90,000 – $260,000 (married)
35% $200,000 – $500,000 (single); $260,000 – $1,000,000 (married)
39.6% over $500,000 (single); over $1,000,000 (married)
Basic Deductions – the TCJA replaces the standard deduction ($6,350 for single individuals and $12,700 for married couples) and the personal exemption ($4,050 each for taxpayer, spouse, and dependent) with a larger standard deduction of $12,000 for single individuals and $24,000 for married couples.
Child Tax Credit – the TCJA establishes a new Family Tax Credit that enhances and consolidates various tax credits associated with caring for dependents. The Family Tax Credit would be $1,600 for each child and at least $300 for other dependents in the taxpayer’s household. The Family Tax Credit would be refundable up to $1,000 (children only) as under current law, but would index that amount for inflation. Over time, the $1,000 amount would catch up to the larger $1,600 amount.
Death Tax and Generation-Skipping Tax – The TCJA doubles the amount of estate property that is exempt from the Death Tax, and then fully repeals the Death Tax after six years. The TCJA also repeals the generation-skipping tax – the federal tax on estates and gifts that are handed down to individuals more than one generation away from the donor or decedent, such as a grandfather and his granddaughter.
Alternative Minimum Tax (AMT) – the TCJA permanently repeals the federal AMT for individual and business taxpayers.
Modifications to Existing Itemized Deductions – the TCJA repeals the itemized deduction for state and local income taxes and sales taxes, but preserves the itemized deduction for state and local property taxes up to $10,000. Under the TCJA, the mortgage interest deduction would be available for interest paid on new mortgages for up to $500,000 in home acquisition indebtedness on principal residences. For existing mortgages, the TCJA allows for current law deduction on indebtedness of up to $1,000,000 and up to $100,000 in home equity.
“Pass-Through” Income – the TCJA separates pass-through business income from ordinary wage income, taxing business income at a maximum rate of 25%. Active business owners can choose between a simple formula and a more complex business capital formula to separate compensation income from non-compensation business income.
Corporate Tax Rate – the TCJA reduces the federal corporate income tax rate from 35% to 20%.
Business Expensing – the TCJA would allow all businesses for a five-year period to fully and immediately expense the cost of property and equipment that is currently eligible for bonus depreciation. This will apply to purchases of used property as well as new property. Full and immediate expensing would apply to property and equipment acquired and placed in service after September 27, 2017. The current cost recovery rules for real property and self-created and purchased intangibles are maintained in the TCJA.
Net Operating Losses (NOLs) – the TCJA modifies current NOL rules and allows for indefinite carryforward of NOLs, while generally disallowing carrybacks of NOLs. Additionally, the deduction allowed with respect to an NOL carryforward in any year is limited to 90% of the business’s net taxable income for such year. The value of NOLs that are carried forward would be preserved through applying an interest factor that compensates for inflation and provides a real return on capital. In limited situations, a one year carryback would be allowed for NOLs attributed to certain disaster losses for certain small businesses and farms.
President Trump and the leaders of the Republican-led Congress have stated their intent to reach consensus on federal tax relief and legislation before Christmas. The TCJA is the starting point for this effort. We will keep members apprised of relevant developments.
State Senate Unanimously Approves UI Reform Legislation
Every two years, the Unemployment Insurance Advisory Council (UIAC) is required to submit its recommended changes to Wisconsin’s Unemployment Insurance (UI) law to the State Legislature for review and consideration.
Last week, the State Senate unanimously approved the UIAC recommendations for the 2017-2018 legislative session. While the majority of the proposed changes are technical modifications, there are three provisions which should directly or indirectly benefit WIB members. They are:
UI Benefit Ineligibility for Concealment of Holiday, Vacation, Termination, or Sick Pay
UI claimants who conceal wages on a UI claim are ineligible for UI benefits for that week. Under the UIAC proposal, claimants who conceal holiday, vacation, termination, or sick pay would also be ineligible for UI benefits in the week they conceal such pay.
UI Benefit Ineligibility for Failure to Provide Information
The Wisconsin Department of Workforce Development (DWD) may require any UI claimant to answer questions relating to the claimant’s eligibility for UI benefits. A UI claimant is ineligible to receive UI benefits for any week in which the UI claimant fails to comply with a request by DWD to provide the information until the UI claimant complies with the request. If a UI claimant later complies with such a request, the UI claimant is eligible to receive UI benefits as of the week in which the failure to provide information occurred.
The UIAC proposal specifies that UI claimants who fail to answer DWD eligibility questions are ineligible for UI benefits beginning with the week involving the eligibility issue, not the week in which the claimant fails to answer the Department’s questions.
Revisions to Pre-Employment Drug Testing
Wisconsin employers may report the name of anyone who either fails or refuses to take a pre-employment drug test that is a condition of the offer of employment. Failing or refusing to take a pre-employment drug test is presumed to be a refusal of suitable work. If a UI claimant fails a pre-employment drug test (without a valid prescription) and has not established that they had good cause, the UI claimant will be offered the option to attend treatment and complete a skills assessment before UI benefits are denied.
Under the UIAC proposal, employers who submit information to DWD about individuals who fail or refuse to take drug tests would be provided with civil immunity for acts or omissions with respect to such submissions. Furthermore, the UIAC proposal clarifies that all information related to drug testing and prescription medication is confidential.
While we support the UIAC recommendations, we are disappointed that the Council failed to come up with reasonable changes to the work search requirements for seasonal employees. The existing requirements make it difficult for seasonal employers to retain their workers.
We will continue to lobby on this issue. In the interim, we encourage members who operate seasonal businesses to review this guidance document published by the DWD.
WEDC Board Signs Off on Foxconn Contract
In late September, state lawmakers approved legislation to implement an agreement between the Governor and the Foxconn Company. The agreement called for the State of Wisconsin to provide up to $3 billion in an economic incentive package in exchange for Foxconn making a capital investment of up $10 billion and creating up to 13,000 full-time jobs with an average annual salary of $53,875.
Since then, the Wisconsin Economic Development Corporation (WEDC) and Foxconn have been in negotiations on a binding contract that would set forth the specific terms and conditions under which the State of Wisconsin would provide the economic incentives to Foxconn. Those negotiations concluded yesterday. The WEDC has provided this summary of the contract
Governor Walker and Foxconn Chairman Terry Gou are expected to ratify the contract tomorrow thereby clearing the way for the company to begin construction of its manufacturing facilities in Mount Pleasant, Wisconsin.