5 Ways You May Benefit from the American Jobs Act

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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The President has proposed a massive new jobs act. Congress is now considering what to do with it. Here is what the provisions in the jobs act could mean to you, both personally and for your business.

1. Tax Holiday for Workers

Whether you are an employee of your corporation or self-employed, you are currently enjoying a two percentage point reduction in Social Security taxes. This 2011 tax break represents a savings of more than $2,000, depending on your earnings. The tax holiday does not diminish the Social Security credits you earn and what you will receive when you retire.

The President has proposed that the current holiday be expanded for 2012. The proposal would cut the Social Security tax rate in half, from 6.2 percent to 3.1 percent. The Social Security Administration has not yet released the wage base for 2012, which is the maximum amount of earnings on which the Social Security tax is figured. The 2011 wage base of $108,600 is expected to be increased, so the savings for higher income taxpayers could be even more meaningful next year. If, for example, the wage base were to rise to $110,000 for 2011, a 3.1 percent Social Security tax rate would mean a savings of more than $3,400 for earners at or above this limit. The savings for the average worker is projected to be about $1,500.

2. Tax Holiday for Employers

The act would allow employers to enjoy their own payroll tax holiday. The size of their savings would depend on the size of their payroll.

• The Social Security tax would be cut in half to 3.1 percent for employers on the first $5 million in wages.
• The tax would be waived entirely for employers who, in 2012, increase wages paid to existing workers and/or add new workers to the payroll as compared with 2011. The break would apply for payroll up to $50 million above 2011.

Again, the employer-share of reduced Social Security taxes would not diminish a worker’s Social Security credits, which ultimately translate into retirement benefits.

3. Tax Incentives for Hiring the Unemployed

The act would create three new tax credits for hiring long-term unemployed individuals (defined as those unemployed for more than six months):

• Basic credit of up to $4,000 for hiring any long-term unemployed person;
• Returning Heroes Tax Credit of up to $5,600 for hiring unemployed veterans ;
• Wounded Warriors Tax Credit of up to $9,600 for hiring unemployed workers with service-connected disabilities.

4. Startup Assistance

Currently, Delaware, Maine, New Jersey, New York, Oregon, and Pennsylvania all have self-employment assistance programs for people who are collecting unemployment benefits. Instead of requiring the unemployed to seek employment, they can continue to receive unemployment benefits while starting a business. The act would give states without such programs the flexibility to help long-term unemployed workers effectively create their own jobs by starting their own small businesses.

5. Capital investments

For 2011, if you buy new equipment for your business or make certain leasehold, restaurant, or retail improvements, you can deduct all of your costs. This break, which is called 100 percent bonus depreciation, is scheduled to be only 50 percent in 2012. The act would extend the 100 percent bonus depreciation rules through 2012.

Final Word

While the President can make proposals, it remains for Congress to decide whether to enact them and what the details will be. What to do now:

• Watch for progress on the measure.
• If you expect these provisions to be enacted, determine now whether you’ll want to take advantage of them. For example, if you had been rushing to complete improvements to your leased facilities, you may be able to stretch expenditures into 2012 without losing the full write-off.
• If you are currently unemployed, decide whether now is the right time to start a business. Check to see if your state has or will have a self-employment assistance program to help you. Alternatively, your job-hunting in 2012 may be a little easier if employers can get a tax break for hiring you.

Work with your tax advisor to see how you can optimize any changes that may benefit your business.