NEW HSA AMOUNTS FOR 2012

Here are the new HSA contribution limits for 2012:

• Contribution limit ~
• Family: $6,250
• Self: $3,100
• Catch up if over 55 ~
• Family: $1,000
• Self: $1,000
• Minimum deductible ~
• Family: $2,400
• Self: $1,200
• Max out of pocket ~
• Family: $12,000
• Self: $6,050

The catch up contribution can only be made by individuals who are at least 55 and are not yet enrolled in Medicare. Remember that starting in 2011 because of Obama Care over-the-counter medicines may not be reimbursed thru HSA.

MY DAD WAS WRONG

I remember when I was a high school student my dad told me that I had a choice as I selected a career.  I could work for the private sector or I could work for the government.  He said that the government workers were pretty much guaranteed that they would not lose their job and they had a really good pension plan but that was offset by the fact that they were not paid as well. 

Little did he know how things would change.  Now they have job security, a good pension and are paid better.

TheHill.com reports that "the Congressional Budget Office found Monday that federal workers are compensated 16% more than comparable private-sector workers on average. ... For those with only a high-school degree, workers earned 21% more and were given benefits worth 72% more than in the private sector."  For federal workers with a college degree, "wages were about the same but benefits were 46% better in the government."  According to the story, "President Obama's 2013 budget request, due to be sent to Congress on Feb. 13, will ask for a 0.5% cost-of-living raise for workers."

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GOOD TIMES FOR U.S. FARM ECONOMY

(Nebraska Radio Network) -- NebraskaRadioNetwork.com reports that Jason Henderson, Vice President of the Federal Reserve Bank of Kansas City, "believes the agricultural economy should stay in a growth period for at least another year."  Henderson credits high commodity prices, "the low value of the dollar, which is supporting U.S. agricultural exports overseas," as well as "growing incomes in global markets, especially developing countries."

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DIMINISHED DEPRECIATION INCENTIVES

To help a struggling economy, Congress has been using two incentives to encourage businesses to expend for capital equipment. Through 2011, new equipment (but not used) qualified for a 100% bonus depreciation deduction. But for calendar year 2012, the first-year bonus percentage drops to 50%, and for 2013 there is no bonus percentage. The 100% incentive for 2011 required that the asset must have been both legally acquired and placed in service by December 31, 2011.

The long-standing Section 179 first-year depreciation deduction was $500,000 for tax years beginning in 2011. But for a tax year beginning in 2012, this deduction is only $139,000. This first-year incentive deduction applies to both new and used assets, and is claimed before applying the 50% bonus for 2012.

As an illustration, assume that a farmer acquires $339,000 of various items of machinery and equipment during 2012. Up to $139,000 of Section 179 expense can be claimed, and that should be applied to used items rather than new equipment. That leaves the remaining $200,000 of cost to which the 50% bonus is applied for another $100,000 deduction (assuming this remaining $200,000 is all new equipment eligible for the percentage bonus). The remaining $100,000 is subject to the normal seven-year depreciation schedule. So, for this example under 2012 rules, there is $239,000 of first year deductions on total costs of $339,000.

The bonus depreciation provision applies to new acquisitions of assets that have a 20-year or shorter depreciation period. Consequently, farm machine sheds and shops, which are 20-year assets, qualify for bonus depreciation. If completed and placed in service during 2012, bonus depreciation applies to 50% of the cost with the remaining 50% depreciated over 20 years (1/2 year for the first year).

But note: There are some commentators that think that the President and Congress will go back to the $500,000 and 100% rules of 2011. I am watching for the upcoming debate on the 2% payroll tax for a hint of what Washington will do.

DEADLINE COMING UP FOR FLEX PLANS

A deadline for many flex plan participants is coming up.  The 2011 set-asides must be used by March 15 if the plan uses IRS’ 2½-month grace period.  Any funds left over are forfeited. The deadline for other FSAs was Dec. 31, 2011.

Remember that after this year, the ceiling on FSA set-asides will drop to $2,500.

FARMERS WATCH OUT FOR UNEMPLOYMENT TAX

Because of the excellent numbers, many of the owners of farm corporations paid high wages commodity wages in the fourth quarter of 2011.  In many cases the wages reported in this quarter can easily exceed $20,000.

This becomes a problem.  When cash and commodity wages reported for any quarter exceed $20,000, the corporation is subject to paying Nebraska Unemployment taxes (SUTA) (federal unemployment is based soley on cash wages so most farm corporations are not subject to federal unemployment). 

If you paid over $20,000 of cash and commodity wages in any quarter don’t forget you are now required to register with the State Department of Labor and file state unemployment tax returns quarterly.

THE IRS WARNS OF REFUND DELAYS

Last week the Internal Revenue Service warned that tax refunds could be delayed a week this tax season because of new anti-fraud safeguards.

“The IRS has opened its filing season successfully this month, and refunds have started going out to many taxpayers,” the agency said in an email to tax professionals. “As with the start of any tax season, there are system validations that occur requiring some fine-tuning of our systems. As part of this, some taxpayers will receive refunds approximately one week later than initial projections they may have received, but these are still in line with historical refund delivery times.”

The IRS noted that the one-week delay is related to the fine-tuning of IRS systems to adjust for new safeguards that were put in place this tax season to provide for stronger protection against tax refund fraud. The agency has come under heavy criticism for the increasing number of identity theft cases related to tax refunds, and it recently added more stringent measures.

The IRS said it is providing additional screening for fraud this year before issuing refunds, but the vast majority of taxpayers can still continue to expect to receive their refunds in a timely fashion.

The IRS also noted that the refund time frames provided by the “Where’s My Refund” tool on its Web site are projected time frames and are subject to revision. “Many different factors can affect the timing of the refund after the IRS receives the return for processing,” said the agency. “The IRS apologizes for any inconvenience caused by the revised refund dates.”

The IRS promised that the delay only affects some early filers, and taxpayers whose returns were accepted by the IRS on or after January 26 would not experience the delay.