Some Ideas on The Recent Paycheck Bonus Tax Credit Proposal

Thoughts on The New Paycheck Bonus Tax Credit Proposal

Paycheck Bonus Tax Credit
Paycheck Bonus Tax Credit

Democratic Congressman Chris Van Hollen represents the 8th congressional district in the state of Maryland. He was previously Senator Charles Mathias’s legislative assistant for defense and foreign policy, as well as Governor William Schaefer’s legislative advisor for federal affairs.

Before beginning his career in politics, Congressman Van Hollen practiced law in the state of Maryland. On January 12, 2015, he proposed a legislation that included several proposals, which included the Paycheck Bonus Tax Credit, the Saver’s Bonus, the CEO-Employee Paycheck Fairness Act, the Second Earner Tax Deduction and the Child and Dependent Care Tax Credit Increase.

Democratic Congressman Chris Van Hollen
Democratic Congressman Chris Van Hollen

Paycheck Bonus Tax Credit

The Paycheck Bonus Tax Credit proposes that every worker should receive a tax credit of $1,000. Single workers would receive $1,000 and married couples would collectively receive $2,000. The tax credit would begin to decrease once wages earned reached $100,000 for singles and $200,000 for married working couples. The purpose of this legislation is to reduce the wide difference in pay between middle-class workers and rich investors.

Congressman Van Hollen theorizes that the current tax code is largely in favor of investors, who increase their wealth via the investments rather than making money as a result of hard work, as the average worker does. He believes that everyone’s income should increase instead of the rich getting richer and the poor getting poorer.

The proposal would raise the average worker’s income by $40,000 over a 40-year period, with the possibility of further increase if employees invest some of the additional money they acquire. With this plan, employees can keep more of the money they earn. The hope is that changes to the tax code would encourage businesses to increase employee paychecks, thus rewarding hard-working middle- and lower-class employees.

Paycheck Bonus Tax Credit Return
Paycheck Bonus Tax Credit Return

Saver’s Bonus

The Saver’s Bonus would provide an extra $250 for each employee who invests $500 into a tax-preferred savings plan. The $500 can come from the Paycheck Bonus Tax Credit or the Earned Income Tax Credit. This means workers are effectively being paid more in order to invest.

CEO-Employee Paycheck Fairness Act
CEO-Employee Paycheck Fairness Act

CEO-Employee Paycheck Fairness Act

Currently, large companies can claim tax deductions for CEO salaries up to $1 million, but deductions can exceed that for performance pay and bonuses. This means that taxpayers are effectively paying, at least in part, for these CEO perks. The CEO-Employee Paycheck Fairness Act is envisioned as a measure that would prevent companies from claiming CEO tax deductions that exceed $1 million unless workers receive a paycheck raise that reflects the increasing cost of living and also takes into account enhanced worker productivity. The business would also be prohibited from claiming such tax deductions if the business is laying off employees; on the other hand, it would be allowed to exceed $1 million if it gave workers profit-sharing plans and ownership benefits that meet pre-approved standards. In addition, companies that set up apprenticeships and various job-training partnerships would be eligible for certain tax credits.

Second Earner Tax Deduction

The Second Earner Tax Deduction is a tax deduction designed specifically for couples, where both parties are wage earners. This benefit would allow for a tax deduction of 20% for the second wage earner who has dependents, for up to $60,000. This could increase wages significantly for more than 7 million families and would help them save money on taxes.

 

Child and Dependent Care Tax Credit
Child and Dependent Care Tax Credit

Child and Dependent Care Tax Credit Increase

The Child and Dependent Care Tax Credit currently cannot exceed $3,000 for families with only one child or $6,000 for families with two or more children. Congressman Van Hollen’s proposal is that these amounts should change to $8,000 for one child and $16,000 for two or more children. In addition, a tax credit of between 20 and 25 percent would be available until the household reaches a wage above $200,000. He also proposed that the credit should be refundable in order to further benefit disadvantaged families who have trouble paying for childcare.

Obtaining Funds
Obtaining Funds

Proposal for Obtaining Funds

Congressman Van Hollen indicated that the funds to pay for these tax credits and benefits should be accomplished by imposing a fee on financial transactions. This practice would be in keeping with the habit of other areas such as the European Union and the United Kingdom, both of which currently impose a percentage fee on stock trades.

Congressman Chris Van Hollen believes that all the changes he proposes will increase wages, grow individual savings accounts and contribute to the growth of the economy. Since the Republicans dominate congress, Congressman Van Hollen’s proposals are unlikely to be passed. However, his ideas may eventually be embraced by the Democrats in the 2016 election year.

Hopefully, this article got you thinking about ways to advise your business clients on possible tax credits that could affect them. While you’re at it, consider streamlining your efforts this tax season. For instance, if you’re not using electronic tax filing, you may want to consider it. Choosing to efile 1099 and other tax forms could save you lots of time, and the expense of printing and mailing copies to recipients. Not a bad outcome for your practice at all.

Like most CPA’s or tax accountants, you probably have clients with sub-contractors and employees dispersed everywhere. If you’re investing time sending out tax forms, cut that time and work by 70% with this simple step. Use eFile4Biz.com to file 1099 online, and use the spare time to find new clients.
Watch the video below to see what I mean.

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