Broker Check

November 15, 2000

Tax Quote 

            There is nothing wrong with the younger generation that becoming taxpayers won`t  cure.

-Dan Bennett 

Human Browser

            Is what I am.  Now that individuals are swamped with information from the Internet, what they need is a human browser.  So says Harry S. Dent Jr. in his best selling book The Roaring 2000s .  A human browser is "an expert filter, giving clients the few, excellent choices that meet their needs, while shielding them from the overwhelming volume of options that aren`t suitable".  In this model, financial advisors become the browsers that search the "servers" (the providers of investment products and services).  Advisors can "find just the right pieces from the servers to put together the puzzle, or solution for the customer" . 

New York State is Marriage Friendly 

            because it reduced the marriage penalty in 2001 by increasing the standard deduction for married couples filing a joint tax return from $13,000 to $13,400, to $14,200 in 2002 and $14,600 thereafter.  (Empire Tax News - Summer 2000). 

New York Restores Tuition Tax Credit/Deduction 

            New York will again allow a new refundable credit or an itemized deduction for up to $10,000 of qualified undergraduate college tuition expenses.  The credit/deduction will phase in over a four year period starting 2001 with a $2,500 maximum allowable tuition expense. 

            The last time New York had such a deduction it was taken away by Governor Cuomo who, in turn, spent the money the state would otherwise have refunded to taxpayers, on building a larger State University system.  He did not feel it right that taxpayers were allowed to deduct payments to private colleges as well as state colleges.  The current Governor and legislature, in a bipartisan fashion, feel otherwise.  (Empire Tax News - Summer 2000). 

New York Non-Resident Lottery Winners Taxed 

            Beginning with prizes won on or after October 1, 2000 New York non-residents will be subject to New York State income tax on New York State Lottery winnings where the proceed from the prize exceeds $5,000.  The law provides for the withholding of New York State personal income tax on these winnings.  (Empire Tax News - Summer 2000). 

Now a Majority 

            Families with two parents that work.  According to a new Census Bureau report, both spouses were employed at least part-time in 51 percent of the married couples with children compared to 33 percent in 1976.  (New York Times - October 24, 2000  p.A20). 

            This has tremendous implications for our society (less time for parenting will result in more problem children and the need for childcare solutions will continue to grow). 

            The tax law can be used to mitigate these problems by providing a greater tax credit for child care and larger tax deductions for the psychiatric expenses.  Additionally, those of you who work for large corporations may be able to pay for these expenses in Section 125 cafeteria plans which are set up by your employer to pay for these expenses before you are taxed for social security purposes. 

            Politicians, are you listening? 

Ellen Degeneres and Anne Heche Split

            This started me thinking about Health Benefits for Employees` Domestic Partners.  Close to 100 Fortune 500 companies and over 3400 employers, including companies, governments and tax-exempt organizations offer benefits to domestic partners of employees.  Some companies offer benefits only to same-sex partners while others offer benefits for both same and opposite-sex partners.  Benefits provided by employers for employees` domestic partners, whether of the same or opposite sex, raises a number of tax issues for both companies and employees. 

            Employees are not taxed, according to the Internal Revenue Code, on health coverage provided to employees even if employees` spouse and dependents are covered.  While an increasing number of a diverse range of employers provide health benefits for domestic partners, there is no provision in the Internal Revenue Code or in the Treasury Regulations that provide an exclusion or other tax break for these benefits.  Thus, an employee will be taxed on the value of coverage provided for the domestic partner, unless the partner is recognized under state law as the employee`s spouse or qualifies as the employee`s dependent. 

            To qualify as an employee`s dependent, the employee has to provide more than one half of the partner`s support for the calendar year, the domestic partner`s principal place of abode must also be the employee`s home and the domestic partner must be a member of the employee`s household.  But, an "individual is not a member of a taxpayer`s household if at any time during the taxable year of the taxpayer the relationship between such individual and the taxpayer is in violation of local law. 

            In most cases, a domestic partner will not qualify as a spouse or a dependent of the employee.  As a result, the exclusion from gross income will not apply to the health coverage provided to the domestic partner. 

Employer payments to or on behalf of an employee or his dependents under a qualifying plan or system that are made on account of medical or hospitalization expenses in connection with a disability that results from sickness or accident are not wages for FICA purposes.  A similar rule applies for FUTA purposes.  Thus, if the domestic partner qualifies as the employee`s dependent, there will be no FICA or FUTA tax consequences for either the employee or employer.  However, if a domestic partner does not qualify as the employee`s dependent then the amount taxed to the employee will be income for income tax purposes as well as wages for FICA and FUTA purposes.  This means that both the company and the employee will have to pay 7.65% FICA or the value of the coverage subject to the usual limitations of FICA coverage. 

            If you have any questions about these or any other financial matters, please call us.