10: Obama Accounting: Tax "Reform" that Hurts Does Not Help.

Obama legislation in March, 2010 presented formidable challenges to the individual taxpayer. In addition to Obamacare, (Patient Protection & Affordable Care Act, PPACA), mandating each American buy health care insurance or register for the welfare medical card, with IRS penalties for non-compliance, Obama proposed a confusing employer tax law which could negatively affect employees.

The tax law exempts employers who hire unemployed workers from paying Social Security taxes on those workers through December, 2010. Obama and Senator Charles Schumer (D-NY) have propsed extending this exemption an additional 6 months through June, 2011.

Employers deduct 2 types of taxes from employee paychecks:
1. Income tax for federal, state, and local governments and
2. Employment taxes.

There are 2 types of employment payroll taxes:
1. Social Security (6.25%) and
2. Medicare (6.25%).

Employers deduct each of these employment taxes from the employee's gross earnings. Employers are to forward a matching amount of each tax to the federal government to be added to the employee's cumulative account. (If you are self-employed you must pay twice, 6.25% for yourself as employee and 6.25% for yourself as employer, or 13.5% of gross earnings.)

Is it the employer 6.25% or both employer/employee (13.5%) which employers are exempt from? Will the employer deduct the 6.25% from the employee's paycheck and hold both 6.25% amounts? Will employers simply defer payment to the government now and pay these amounts later? Or will the employer not deduct and pass this expense onto the employee as if the employee were an "Independent Contractor", requiring a 1099 form in addition to the W-4 for part of the work year?

This tax "reform" will add stacks of return forms and hours of accounting nightmares for both employer and employee. It may create additional, but unnecesary tax liability for both, which hopefully will have to be corrected later. Inexperienced IRS agents undoubtedly will be stuck in these issues or possibly will try to maximize billing to both for unreasonably high tax amounts.

This tax "reform" also could create chaos in the future for the employee who must "pay-in" to both Social Security and Medicare for future retirement checks and retirement health care coverage through Medicare.

If this an Obama solution to covering phenomenal "bailout" amounts, he may face a taxpayer revolt beyond his imaagination.

How could a tax "reform" law like this could get out of committee to be presented to Congress. Have all the tax experts and congressional staff aides been fired?

Graphic: September, 11--Saturday USA flag commemorating the Attack on America.
In Chase's Calendar of Events.

Reference: AP 9/6/2010

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