Do you know if your Social Security benefits are subject to income tax? If you’re not sure, here are a few important tax facts that will help.

You should receive a Tax Form SSA-1099 that will show you the total amount of the Social Security benefits you received in 2010. Use the information on that form and these important tax facts to determine whether or not your benefits are taxable.

Important Social Security Tax Facts

1. The amount – if any – that are subject to income tax depends on your total income and marital status.
2. In most cases, if your only source of income for 2010 was Social Security, your benefits are not taxable and you probably do not need to file a federal income tax return.
3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status.
4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.
   • First, add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income.
   • Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

To determine whether some of your benefits are taxable use the following calculation:

5. The 2010 base amounts are:
   • $32,000 for married couples filing jointly.
   • $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year.
   • $0 for married persons filing separately who lived together during the year.
6. For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits

The tax facts are a valuable source for determining if your benefits are taxable.

For more income tax related facts and helpful tax tips, visit the IRS website.

source: irs.gov

Yes, its true that the Obama tax cuts will reduce income tax rates and Alternative Minimum Tax (AMT). It will also provide tax relief by reducing employee-paid payroll taxes. It’s called the Payroll Tax Holiday.

The Payroll Tax Holiday provides tax relief by reducing the amount of Social Security tax employees pay on wages earned and self-employed individuals pay on all of their self-employment income (up to $106,800) by 2%. Under current law, employees pay a 6.2 percent tax and the self-employed 12.4 percent.

This tax holiday is only temporary however; it provides tax relief for one year. This means that during 2011, employees will pay only 4.2% on wages and self-employed individuals will pay only 10.4% on income in Social Security tax.

So, everyone should be happy, right? Not so fast!

Progressive advocates and many Democrats are concerned that the payroll tax cut will pose a threat to Social Security. Not because they don’t want workers to have extra cash in their pocket, but because they worry the temporary payroll tax rate will become the norm and leave Social Security competing with other programs for funding – and threatening Social Security benefits.

However, several top Republicans maintain they’re not interested in extending the payroll tax cut. Their “gut feeling” is the tax will be allowed to expire as planned.

Although the tax cut is only 2%, it represents a significant tax reduction of 32 percent. For instance, a worker currently earning $100,000 will pay $6,200 in payroll taxes in 2010, and $4,200 in 2011.

Good, tax relief for the working man, right? Nevertheless, consider…

The Congressional Budget Office estimates the cut will reduce federal revenues by $112 billion over the next two years. Because the tax package is not offset by changes elsewhere in the budget, the government will have to borrow to fill that hole in the Social Security trust fund.

Not so good, no relief for our national debt.

Sources: democrats.senate.gov, thehill.com, democraticunderground.com

Each year, the IRS makes changes to it’s tax code. Here is a high level account of the changes to the IRS tax code for businesses.   I will try to capsulize the changes for each category. It is recommended that you talk to your tax adviser about the specifics if any of the following apply to you:

Depreciation and Section 179 Deduction
In 2008 you will be able to deduct the full purchase price (100%) of “qualifying equipment” that you purchased in 2008, but you must have purchased int the same year.

The limitations are that the maximum write-off is capped at $250,000.
And there is a cap of $800,000 for the total amount of the equipment purchased.  But if you’re purchases are over $250,000, you can get a “bonus” write-off in the same year equal to 50% of the balance leftover.  You can then write off the balance over 5 years (up to $800,000)
<a href=”http://truetaxfacts.com/2008-section-179-tax-changes-business-vehicles” target=”_blank”>Here is more information on this change</a>.

Meal Expenses When Subject to “Hours of Service” Limits
In general, you can deduct only 50% of your business-related meal expenses. However, for 2008 and later years, you can deduct 80% of meal expenses while traveling away from your tax home for business purposes if the meals take place during or incident to any period subject to the Department of Transportation’s “hours of service” limits.

The “hours of service” rule are set forth by the US Department of Transportation’s division of Federal Motor Carrier Safety Administration (FMCSA) governing the working hours of anyone operating a commercial motor vehicle (CMV). This includes truck drivers and bus drivers.

Self-Employment Tax
Beginning in 2008, $102,000 is the maximum amount of net earnings
There is no limit on the the amount of wages subject to the Medicare tax.

Social Security and Medicare Taxes
As stated above, the maximum amount of wages subject to the social security tax for 2008 is $102,000. There is no limit on the amount of wages subject to the Medicare tax.

Federal Unemployment Tax Act (FUTA) Tax Rate
The government has decided to keep the FUTA tax rate at the current 6.2% in 2008. It was scheduled to decrease two percentage points to 6.0% after 2007.

Maximum Automobile Value for Using the Cents-Per-Mile Valuation Rule
For employers who provide a auto, for the first time, for the personal use by an employee, the value of that personal use can be determined using the “cents-per-mile rule”. IF the fair market value of that vehicle is less than $15,000 for a car and $15,900 for a truck or van.

For more information, see Cents-Per-Mile Rule on page 20 of Publication 15-B, Employer’s Tax Guide to Fringe Benefits.

Fringe Benefit Parking Exclusion and Commuter Transportation Benefit
Employers can exclude some of the value of parking, highway credits and transits passes it provides to employees, from employees wages.

For 2008, the monthly exclusion for qualified parking increases to $220 and the monthly exclusion for commuter highway vehicle transportation and transit passes increases to $115.

Health Savings Accounts
Eligibility. For 2008, a qualifying high deductible health plan (HDHP) must have a deductible of at least:

• $1,100 for self-only coverage or
• $2,200 for family coverage and
• must limit annual out-of-pocket expenses of the beneficiary to $5,600 for self-only coverage and
• $11,200 for family coverage.

Employer contributions. Up to specified dollar limits, you can generally exclude your contributions (must be in cash) to the health savings account (HSA) of a qualified individual (determined monthly) from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. For 2008, you can contribute up to the following amounts to a qualified individual’s HSA.

• $2,900 for self-only coverage or $5,800 for family coverage.
• $3,800 for self-only coverage or $6,700 for family coverage for qualified individuals who are age 55 or older at any time during the year.

Nonqualified Deferred Compensation Plans
This topic is tricky and complicated. But in general terms, in 2008, final regulations are replacing many of the portions of the regulations regarding deferred compensations plans.   If you think you may be affected, contact your tax professional.

Penalty for Late Filing of a Partnership Return
Starting this year, the penalty for filing late as a “partnership” is increased to $86 for each month or part of a month (up to 12 months) the return is late or does not contain the required information, multiplied by the total number of persons who were partners in the partnership during any part of the partnership’s tax year for which the return is due.

Expiring Tax Benefits
Each year, certain provisions and tax benefits expire from the IRS Tax Code. However, Congress was expected to consider legislation that would reinstate many of these benefits. Go to www.irs.gov and click on “What’s Hot” in forms and publications for more information or talk to your tax adviser.