2.   Tax Changes for Businesses

Table of Contents

2008 Changes

Depreciation and Section 179 Deduction

Increased section 179 limits.   The maximum section 179 deduction you can elect for qualified section 179 property you placed in service in tax years that begin in 2008 has increased to $250,000 ($285,000 for qualified enterprise zone property and qualified renewal community property). This limit is reduced by the amount by which the cost of section 179 property placed in service in the tax year exceeds $800,000. For qualified section 179 Gulf Opportunity (GO) Zone property, qualified section 179 recovery assistance property, and qualified section 179 disaster assistance property, the maximum deduction is higher than the deduction for most other section 179 property. See chapter 2 of Publication 946, How to Depreciate Property.

Depreciation limits on business vehicles.   The total depreciation deduction (including the section 179 deduction) you can take for a passenger automobile (that is not a truck or a van) you use in your business and first placed in service in 2008 is $2,960 ($10,960 for automobiles for which the special depreciation allowances applies). The maximum deduction you can take for a truck or a van you use in your business and first placed in service in 2008 is $3,160 ($11,160 for trucks or vans for which the special depreciation allowance applies). See chapter 5 of Publication 946.

  
These limits are reduced if the business use of the vehicle is less than 100%.

Special depreciation allowance for qualified property.   You may be able to take an additional first year special depreciation allowance for qualified recovery assistance property, certain qualified property acquired after 2007, qualified reuse and recycling property, qualified cellulosic biofuel plant property, and qualified disaster assistance property placed in service during the tax year. The allowance is an additional deduction of 50% of the property's depreciable basis (after any section 179 expense deduction and before figuring your regular depreciation deduction). For more information, see chapter 3 of Publication 946.

Qualified recovery assistance property.   A special depreciation allowance is available for qualified recovery assistance property you acquired after May 4, 2007, and placed in service in the Kansas disaster area.

Certain qualified property acquired after 2007.   A special depreciation allowance is available for certain qualified property acquired after 2007 and placed in service before 2010 (before 2011 for certain property with a long production period and certain aircraft).

Qualified reuse and recycling property.   A special depreciation allowance is available for qualified reuse and recycling property acquired after August 31, 2008.

Qualified cellulosic biofuel plant property.    A special depreciation allowance is available for qualified cellulosic biofuel plant property placed in service after October 3, 2008, and before 2013.

Qualified disaster assistance property.   A special depreciation allowance is available for qualified disaster assistance property placed in service in federally declared disaster areas in which the disaster occurred after 2007.

Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information

For tax years beginning after 2007, corporations will use Form 8926, Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information, to figure the amount of any corporate interest expense deduction disallowed by section 163(j). A corporation's interest expense may be disallowed if it paid or accrued disqualified interest during the tax year.

Disqualified interest is:

  • Interest paid or accrued (directly or indirectly) to a related person not subject to U.S. income tax on the interest,

  • Interest paid or accrued on indebtedness held by an unrelated person if there is a disqualified guarantee of the indebtedness and the interest is not subject to a U.S. gross basis income tax (a tax figured on the gross amount of an item of income without reduction for any allowed deduction), or

  • Interest paid or accrued (directly or indirectly) to a taxable real estate investment trust (as defined in section 856(l)) by a subsidiary of the trust.

Also, any disqualified interest disallowed as a deduction by section 163(j) in a tax year is carried forward and treated as disqualified interest paid or accrued in the next tax year.

However, if at least one of the following statements is true, disqualified interest paid or accrued in the current tax year will not be disallowed by section 163(j).

  • The corporation's debt to equity ratio at the end of the tax year does not exceed 1.5 to 1.

  • The corporation does not have any excess interest expense for the tax year.

For more information, see the Instructions for Form 8926.

Business Start-up and Organizational Costs

A separate election statement is no longer required to elect to deduct up to $5,000 of business start-up and organizational costs paid or incurred after September 8, 2008. This amount is reduced (but not below zero) by the amount by which your costs exceed $50,000. Any costs not deducted must be amortized ratably over a 180-month period.

You can also apply the same treatment to business start-up costs and organizational costs paid or incurred after October 22, 2004, and before September 9, 2008, provided the period of limitations on assessment of tax has not expired for the year of the election. For more information, see chapter 8 of Publication 535, Business Expenses.

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. Business meal expenses are covered in chapter 1 of Publication 463. Reimbursements for employee meal expenses are covered in chapter 11 of Publication 535.

Self-Employment Tax

Maximum amount subject to tax.   The maximum amount of net earnings subject to the social security part of the self-employment tax for tax years beginning in 2008 is $102,000. All net earnings of at least $400 are subject to the Medicare part of the tax.

Conservation Reserve Program (CRP) payments.   CRP payments you receive after 2007 are excluded from net earnings from self-employment when figuring your self-employment tax if you are receiving social security benefits for retirement or disability. Qualifying individuals will deduct CRP payments on line 1b of the 2008 Schedule SE (Form 1040).

Optional methods to figure net earnings.   For tax years beginning in 2008, the dollar thresholds for using the optional methods to figure net earnings from self-employment have increased. You may use the farm optional method to figure your net earnings from farm self-employment if your gross farm income was $6,300 or less or your net farm profits were less than $4,548. The nonfarm optional method may be used to figure your net earnings from nonfarm self-employment if your net nonfarm profits were less than $4,548 and also less than 72.189% of your gross nonfarm income.

  In 2008, the maximum social security coverage under the optional methods has increased to four credits, the equivalent of $4,200 of net earnings from self-employment. In future years, the thresholds will be indexed to maintain that level of coverage.

Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance

Generally, corporations and a certain automotive partnership can elect to accelerate pre-2006 unused research credits or minimum tax credits in lieu of claiming the special depreciation allowance for certain eligible qualified property acquired after March 31, 2008, and placed in service before January 1, 2010 (before January 1, 2011, for long production period property and noncommercial aircraft). For more information, see chapter 3 of Publication 946. Also, see Form 3800, General Business Credit; Form 8827, Credit for Prior Year Minimum Tax—Corporations; and related instructions.

Alcohol and Cellulosic Biofuel Fuels Credit

For credits claimed on returns filed after May 14, 2008, you cannot claim the alcohol and cellulosic biofuel fuels credit for alcohol produced outside the United States for use as a fuel outside the United States. For this purpose, the term “United States” includes any U.S. possession.

For more information, see Form 6478, Alcohol and Cellulosic Biofuel Fuels Credit.

Biodiesel and Renewable Diesel Fuels Credit

The following changes apply to the biodiesel and renewable diesel fuels credit.

  • For credits claimed on returns filed after May 14, 2008, biodiesel and renewable diesel do not include fuel produced outside the United States for use as a fuel outside the Untied States. For this purpose, the term “United States” includes any U.S. possession.

  • For fuel produced, and sold or used, after October 3, 2008, renewable diesel does not include any fuel derived from co-processing biomass with feedstock that is not biomass.

For more information, see Form 8864, Biodiesel and Renewable Diesel Fuels Credit.

Low-Income Housing Credit

The low-income housing credit attributable to buildings placed in service after 2007 is allowed against both the regular tax and the AMT. For more information about this credit, see Form 8586, Low-Income Housing Credit.

Agricultural Chemicals Security Credit

The Food, Conservation, and Energy Act of 2008 added the agricultural chemicals security credit as part of the general business credit. Use Form 8931, Agricultural Chemicals Security Credit, to claim the credit for qualified agricultural chemicals security costs. Only qualified agricultural chemicals security costs paid or incurred after May 22, 2008, and before 2013 can be used to figure the credit. The credit is only available to eligible agricultural businesses. The credit is 30% of the qualified agricultural chemicals security costs paid or incurred during the tax year.

Facility limit.    The amount of the credit for any facility for a tax year cannot be more than $100,000 minus the total of the credits figured for the facility for the 5 prior tax years.

Annual limit.   The amount of the credit figured for any tax year cannot be more than $2 million.

Eligible agricultural business.   An eligible agricultural business is any person in either of the following trades or businesses.

  
  • Selling agricultural products, including specified agricultural chemicals, at retail to farmers and ranchers.

  • Manufacturing, formulating, distributing, or aerially applying specified agricultural chemicals.

Specified agricultural chemical.   A specified agricultural chemical is either of the following.
  1. Fertilizer commonly used in agricultural operations that is listed under any of the following.

    1. Section 302(a)(2) of the Emergency Planning and Community Right-to-Know Act of 1986.

    2. Section 101 of part 172 of title 49, Code of Federal Regulations.

    3. Part 126, 127, or 154 of title 33, Code of Federal Regulations.

  2. Any pesticide (as defined in section 2(u) of the Federal Insecticide, Fungicide, and Rodenticide Act), including all active and inert ingredients, that is customarily used on crops grown for food, feed, or fiber.

Qualified agricultural chemicals security costs.    Qualified agricultural chemicals security costs are any of the following costs paid or incurred by an eligible agricultural business during the tax year to protect specified agricultural chemicals.
  • Employee security training and background checks.

  • Limitation and prevention of access to controls of specified agricultural chemicals stored at the facility.

  • Tagging, locking tank valves, and chemical additives to prevent theft of specified agricultural chemicals or to make the chemicals unfit for illegal use.

  • Perimeter protection of specified agricultural chemicals.

  • Installation of security lighting, cameras, recording equipment, and intrusion detection sensors.

  • Implementation of measures to increase computer or computer network security.

  • Conducting a security vulnerability assessment.

  • Implementing a site security plan.

  • Other measures for protection of specified agricultural chemicals to be identified in future regulations.

  For more information, see section 45O.

Carbon Dioxide Sequestration Credit

Carbon dioxide captured after October 3, 2008, from an industrial source may be eligible for a credit. A credit of $20 per metric ton is allowed for qualified carbon dioxide that is captured at a qualified facility and disposed of in secure geological storage or $10 per metric ton to qualified carbon dioxide that is captured at a qualified facility and used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project. Only carbon dioxide captured and disposed of or used within the United States or a U.S. possession is taken into account when figuring the credit. For more information, see Form 8933, Carbon Dioxide Sequestration Credit.

Social Security and Medicare Taxes

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.

Maximum Automobile Value for Using the Cents-Per-Mile Valuation Rule

For 2008, an employer providing a passenger automobile for the first time for the personal use by an employee may determine the value of the personal use by using the vehicle cents-per-mile value rule if the vehicle's fair market value on the date it is first made available to the employee does not exceed $15,000 for a passenger automobile other than a truck or van, or $15,900 for a truck or van. For more information, see Cents-Per-Mile Rule on page 20 of the 2008 Publication 15-B, Employer's Tax Guide to Fringe Benefits.

Fringe Benefit Parking Exclusion and Commuter Transportation Benefit

You can generally exclude a limited amount of the value of qualified parking and commuter highway vehicle transportation and transit passes you provide to an employee from the employee's 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. See Qualified Transportation Benefits on page 17 of the 2008 Publication 15-B.

Health Savings Accounts (HSAs)

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, cash contributions to the health savings account (HSA) of a qualified individual (determined monthly) are exempt 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 a qualified individual who is age 55 or older at any time during the year. The $6,700 limit is increased by $900 for two married individuals who are age 55 or older at any time during the year provided each spouse has a separate HSA.

  Employers are allowed to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee.

  For more information, see Health Savings Accounts on page 12 of the 2008 Publication 15-B.

Nonqualified Deferred Compensation Plans

Generally, all amounts deferred under a nonqualified deferred compensation plan for the tax year and all preceding tax years are included in your employees' wages in the current year, unless the plan meets certain requirements. These requirements were stated in Notice 2005-1. However, portions of that notice were obsoleted and replaced by final regulations that were effective for tax years beginning after 2007. For more information, see Treasury Decision 9321, 2007-19 I.R.B. 1123, available at
www.irs.gov/irb/2007-19_IRB/ar02.html.

Capital Gain Tax Rate Reduction for Corporations With Qualified Timber Gain

For tax years ending after May 22, 2008, and beginning before May 23, 2009, if a corporation has both a net capital gain and a qualified timber gain, a maximum 15% capital gains tax rate may apply for part of the tax year. The reduced tax rate applies for both regular tax and alternative minimum tax purposes. See the Instructions for Schedule D (Form 1120) and the Instructions for Form 4626, Part II, for details.

5-Year Carryback of 2008 Net Operating Losses (NOLs) for Eligible Small Businesses (ESBs)

For 2008, you can choose a 3, 4, or 5-year carryback period for the part of your 2008 NOL that is an ESB loss. An ESB is a small business as defined in section 172(b)(1)(F)(iii), except that an ESB's 3-year average annual gross receipts can be up to $15 million (instead of $5 million). An ESB loss is the smaller of:

  1. The amount that would be the 2008 NOL if only income, gains, losses, and deductions attributable to ESBs were taken into account, or

  2. The 2008 NOL.

For more information, see the Instructions for Form 1139 (corporations) or the Instructions for Form 1045 (individuals, estates, and trusts).

Depletion

The temporary suspension of the taxable income limitation on percentage depletion from the marginal production of oil and natural gas is not available for tax years beginning after 2007 and before 2009. It is, however, available for tax years beginning after 2008 and before 2010.

Penalty for Late Filing of a Partnership Return

For partnership returns for tax years beginning in 2008 that are required to be filed after 2008, the late filing penalty is increased to $90 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. No penalty will be imposed if the partnership shows that the late filing was due to reasonable cause.

Penalty for Late Filing of an S Corporation Return

If no tax is due, the late filing penalty for returns required to be filed after 2008 increased to $89 for each month or part of a month (up to 12 months) the return is late or does not include the required information, multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation's tax year. The penalty change discussed in the preceding sentence also applies if tax is due. In addition, the minimum additional late filing penalty for returns required to be filed after 2008 that are more than 60 days late increased to $135 or the balance of the tax due on the return, whichever is smaller. For more information, see the Instructions for Form 1120S.

2009 Changes

COBRA Premium Assistance Credit

The American Recovery and Reinvestment Act of 2009 allows a credit against certain employment taxes for providing COBRA premium assistance to assistance eligible individuals. An assistance eligible individual is any qualified beneficiary if at any time during the period beginning on September 1, 2008, and ending on December 31, 2009, the beneficiary is eligible for COBRA continuation coverage, the beneficiary elects coverage, and the qualifying event that allows the beneficiary to get coverage is the involuntary termination of the covered employee's employment during this period. For periods of COBRA continuation coverage beginning after February 16, 2009, a group health plan must treat an assistance eligible individual as having paid the required COBRA continuation coverage premium if the individual elects COBRA continuation coverage and pays 35% of the amount of the premium.

The 65% of the amount of the premium not paid by the assistance eligible individual is reimbursed to the employer or other entity maintaining the group health plan. The maximum period for which the reimbursement can be provided for any beneficiary is 9 months. The reimbursement is made through a credit against employment tax liabilities. The credit is taken on line 12a of Form 941, line 11a of Form 944, or line 13a of Form 943 once the 35% of the premium is paid by or on behalf of the assistance eligible individual. The credit is treated as a deposit made on the first day of the return period (quarter or year).

Anyone claiming the credit for COBRA assistance payments must maintain the appropriate information to support their claim.

For more information, see Publication 15 (Circular E), Employer's Tax Guide.

New Forms to Adjust Employment Tax Returns

Adjusted employer's quarterly federal tax return or claim for refund.   Beginning with errors discovered after 2008, employers must use Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, to adjust errors discovered on previously filed Forms 941 and 941-SS. Form 941c, which was previously used to adjust errors on Forms 941 and 941-SS and was attached to a currently-filed Form 941 or Form 941-SS, can no longer be used. You are required to file Form 941-X separately from Form 941 or Form 941-SS.

Adjusted employer's annual federal tax return for agricultural employees or claim for refund.   Beginning with errors discovered after 2008, employers must use Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund, to adjust errors discovered on previously filed Form 943. Form 941c, which was previously used to adjust errors on Form 943 and was attached to a currently-filed Form 943, can no longer be used. You are required to file Form 943-X separately from Form 943.

Adjusted employer's annual federal tax return or claim for refund.   Beginning with errors discovered after 2008, employers must use Form 944-X, Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund, to adjust errors discovered on previously filed Forms 944 and 944-SS. Form 941c, which was previously used to adjust errors on Forms 944 and 944-SS and was attached to a currently-filed Form 944 or Form 944-SS, can no longer be used. You are required to file Form 944-X separately from Form 944 or Form 944-SS.

Adjusted annual return of withheld federal income tax or claim for refund.   Beginning with errors discovered after 2008, employers must use Form 945-X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund, to adjust errors discovered on previously filed Form 945. Form 941c, which was previously used to adjust errors on Form 945 and was attached to a currently-filed Form 945, can no longer be used. You are required to file Form 945-X separately from Form 945.

Changes to Investment Credit

Generally, the energy credit from the following properties was scheduled to expire after 2008 but has been extended through 2016.

  • Qualified fuel cell property.

  • Qualified microturbine property.

  • Solar energy property.

For tax years beginning after October 3, 2008, the energy credit can offset the alternative minimum tax.

For periods after February 17, 2009, the investment credit includes the qualifying advanced energy project credit.

For periods after 2008, the $4,000 limit on the energy credit for qualified small wind energy is repealed.

You may elect to treat qualified property placed in service as part of a qualified investment credit facility after 2008 as energy property for purposes of the energy credit instead of taking the renewable electricity production credit.

For more information on the investment credit, see the Instructions for Form 3468, Investment Credit.

Depreciation Limits for Trucks or Vans

The maximum deduction you can take for a truck or van you use in your business and first placed in service in 2009 is $3,060 ($11,060 for trucks or vans for which the special depreciation allowance applies).

These limits are reduced if the business use of the vehicle is less than 100%.

Self-Employment Tax

Maximum amount subject to tax.   The maximum amount of net earnings subject to the social security part of the self-employment tax for tax years beginning in 2009 is $106,800. All net earnings of at least $400 are subject to the Medicare part of the tax.

Optional methods to figure net earnings.   For tax years beginning in 2009, the dollar thresholds for using the optional methods to figure net earnings from self-employment have increased. You may use the farm optional method to figure your net earnings from farm self-employment if your gross farm income was $6,540 or less or your net farm profits were less than $4,721. The nonfarm optional method may be used to figure your net earnings from nonfarm self-employment if your net nonfarm profits were less than $4,721 and also less than 72.189% of your gross nonfarm income.

  In 2009, the maximum social security coverage under the optional methods is four credits, the equivalent of $4,360 of net earnings from self-employment.

Alcohol and Cellulosic Biofuel Fuels Credit

The following changes apply to the alcohol and cellulosic biofuel fuels credit.

  • For ethanol sold or used after 2008, the credit rate is lowered.

  • For fuel produced, and sold or used, after 2008, the credit is expanded to include the cellulosic biofuel producer credit.

  • For fuel sold or used after 2008, the percentage of denaturants included in the volume of alcohol used to figure the credit is lowered.

For more information, see Form 6478.

Biodiesel and Renewable Diesel Fuels Credit

The following changes apply to the biodiesel and renewable diesel fuels credit.

  1. For fuel produced after 2008, biodiesel and renewable diesel do not include any liquid eligible for the alcohol and cellulosic biofuel fuels credit.

  2. For fuel produced, and sold or used, after 2008:

    1. The credit rate for the biodiesel and biodiesel mixture credits increased to $1.00 per gallon.

    2. Camelina is added to the list of virgin oils from which agri-biodiesel is derived.

    3. The definition of renewable diesel changed.

  3. Biodiesel produced, sold, or used after September 30, 2009, must meet the new ASTM D6751 cold soak filtration test. The original April 1, 2009, deadline was extended by Notice 2009-34. You can find Notice 2009-34, 2009-17 I.R.B. 876, available at www.irs.gov/irb/2009-17_IRB/ar07.html.

For more information, see Form 8864.

Credit for Employer Differential Wage Payments

Eligible small business employers may be able to claim a credit for differential wage payments made to qualified employees after 2008 and before 2010. The credit is 20% of the first $20,000 of qualified differential wage payments made to each qualified employee. For more information, see Form 8932, Credit for Employer Differential Wage Payments.

Carbon Dioxide Sequestration Credit

A credit of $20 per metric ton is allowed for qualified carbon dioxide that is captured at a qualified facility and disposed of in secure geological storage and, if captured after February 17, 2009, not used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project.

A credit of $10 per metric ton to qualified carbon dioxide that is captured at a qualified facility and used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project and, if captured after February 17, 2009, disposed of in secure geological storage. For more information, see Form 8933.

Vehicle Credits

Alternative motor vehicle credit.   For tax years beginning after 2008, the personal use part of the alternative motor vehicle credit is allowed against the AMT.

New plug-in conversion credit.   A new plug-in conversion credit of 10% of the cost of converting any motor vehicle (new or used) to a qualified plug-in electric drive motor vehicle. The maximum credit is $4,000 per vehicle. This credit is claimed on Form 8910, Alternative Motor Vehicle Credit, and applies to property placed in service after February 17, 2009.

New plug-in electric vehicle credit.   A new credit of 10% of the cost of a new plug-in electric vehicle can be claimed on Form 8834. The maximum credit is $2,500 per vehicle.

  A qualified plug-in electric vehicle must meet the following requirements.
  1. The original use of the vehicle began with you;

  2. Was purchased for your use and not for resale;

  3. Is made by a manufacturer;

  4. Is manufactured primarily for use on public streets, roads, and highways;

  5. Has a gross vehicle weight rating of less than 14,000; and

  6. Is propelled to a significant extent by an electric motor which draws electricity from a battery which:

    1. Has a capacity of not less than 4 kilowatt hours (2.5 kilowatt hours in the case of a vehicle with 2 or 3 wheels), and

    2. Is capable of being recharged from an external source of electricity.

  Generally, no credit is allowed if the vehicle is used predominantly outside the United States.

  This credit applies to vehicles acquired after February 17, 2009.

New plug-in electric drive motor vehicle credit.   A new plug-in electric drive motor vehicle credit can be claimed on new Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit. You may be able to claim this credit if you place in service a plug-in electric drive motor vehicle for business or personal use in tax years beginning after 2008. The amount of the credit varies depending on the battery capacity and the date the vehicle is acquired.

  A new qualified plug-in electric drive motor vehicle is a motor vehicle with at least four wheels that meets certain requirements including the following.
  • The original use of the vehicle starts with you.

  • It is purchased for your use or lease and not for resale.

  • It is made by a manufacturer.

  The list of additional requirements that must be met generally depend on whether the vehicle was acquired before 2010 or after 2009.

  You can generally rely on the manufacturer's certification that a specific make, model, and model year vehicle qualifies for the credit and the amount of the credit for which it qualifies.

  Generally, no credit is allowed if the vehicle is used predominately outside the United States.

  For more information, see section 30D, Notice 2009-54, and Notice 2009-89. Notice 2009-54, 2009-26 I.R.B. 1124, is available at www.irs.gov/irb/2009-26_IRB/ar07.html. Notice 2009-89, 2009-48 I.R.B. 714, is available at
www.irs.gov/irb/2009-48_IRB/ar09.html.

Increase in alternative fuel vehicle refueling property credit.   For vehicles placed in service after 2008 and before 2011, the alternative fuel vehicle refueling property credit (claimed on Form 8911) is increased. For property that relates to hydrogen, the maximum credit per location is increased to $200,000. For all other property, the credit percentage is increased to 50% and the maximum credit per location is increased to $50,000 ($2,000 for nondepreciable property).

Work Opportunity Credit

Two new targeted groups have been added to the work opportunity credit.

  • Unemployed veterans.

  • Disconnected youth.

Generally, an unemployed veteran is one who has been discharged or released from active duty in the Armed Forces at any time during the 5-year period ending on the hiring date and who receives unemployment compensation for not less than 4 weeks during the 1-year period ending on the hiring date.

A disconnected youth is one who is certified as:

  • Being at least age 16 but not age 25 or older on the hiring date;

  • Not attending any high school, technical school, or post-secondary school during the 6-month period ending on the hiring date;

  • Not being regularly employed during that 6-month period; and

  • Not being readily employable due to a lack of having a sufficient number of basic skills.

This applies to employees who begin work after 2008 and before 2011.

Use the Form 5884, Work Opportunity Credit, to claim the credit.

Social Security and Medicare Taxes

The maximum amount of wages subject to the social security tax for 2009 is $106,800. There is no limit on the amount of wages subject to the Medicare tax.

Maximum Automobile Value for Using the Cents-Per-Mile Valuation Rule

For 2009, an employer providing a passenger automobile for the personal use of an employee may determine the value of the personal use by using the vehicle cents-per-mile value rule if the vehicle's fair market value on the date it is first made available to the employee does not exceed $15,000 for a passenger automobile other than a truck or van, or $15,200 for a truck or van. For more information, see Cents-Per-Mile Rule on page 23 of the 2009 Publication 15-B.

Qualified Transportation Fringe Benefits

After 2008, qualified transportation fringe benefits include any qualified bicycle commuting reimbursement.

Qualified bicycle commuting reimbursement.   For any calendar year, the exclusion for qualified bicycle commuting reimbursement includes any employer reimbursement during the 15-month period beginning with the first day of the calendar year for reasonable expenses incurred by the employee during the calendar year.

  Reasonable expenses include the purchase of a bicycle and bicycle improvements, repair, and storage. These are considered reasonable expenses as long as the bicycle is regularly used for travel between the employee's residence and place of employment.

Exclusion from wages.   Generally, the value of transportation benefits that you provide to an employee during 2009 are excluded from the employee's wages up to the following limits.
  1. For combined commuter highway vehicle transportation and transit passes:

    1. $120 per month for the months of January and February 2009, and

    2. $230 per month for any month beginning after February 2009.

  2. $230 per month for qualified parking.

  3. For a calendar year, $20 multiplied by the number of qualified bicycle commuting months during that year for qualified bicycle commuting reimbursement.

Qualified bicycle commuting month.   For any employee, a qualified bicycle commuting month is any month the employee regularly uses the bicycle for a substantial portion of the travel between the employee's residence and place of employment and does not receive transportation in a commuter highway vehicle, any transit pass, or qualified parking benefits.

Generally, qualified transportation fringe benefits are excluded from an employee's wages even if you provide them under a compensation reduction agreement. However, qualified bicycle commuting reimbursements do not qualify for this exclusion if made under a compensation reduction agreement. For more information, see Qualified Transportation Benefits on page 19 of the 2009 Publication 15-B.

Health Savings Accounts (HSAs)

Eligibility.   For 2009, a qualifying high deductible health plan (HDHP) must have a deductible of at least $1,150 for self-only coverage or $2,300 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $5,800 for self-only coverage and $11,600 for family coverage.

Employer contributions.   Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. For 2009, you can contribute up to the following amounts to a qualified individual's HSA.
  • $3,000 for self-only coverage or $5,950 for family coverage.

  • $4,000 for self-only coverage or $6,950 for family coverage for a qualified individual who is age 55 or older at any time during the year. The $6,950 limit is increased by $1,000 for two married individuals who are age 55 or older at any time during the year provided and each spouse has a separate HSA.

  Employers are allowed to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee.

  For more information, see Health Savings Accounts on page 13 of the 2009 Publication 15-B.

Build America Bonds

A build America bond is a bond issued after February 17, 2009, and before 2011 that qualifies as a tax-exempt bond that is not a private activity bond, and for which an election is made by the issuer.

A tax credit of 35% of interest payable on build America bonds is available to the bondholder, unless the issuer elects to receive a direct payment in lieu of the credit to the bondholder. The amount of credit is taxable as interest income to the bondholder. The unused credit is not refundable, but can be carried forward to succeeding tax years. Use Form 8912, Credit to Holders of Tax Credit Bonds, to claim the credit.

Cancellation of Debt

Certain businesses can make an irrevocable election to delay recognition income from the cancellation of business debt arising from the reacquisition of certain types of business debt repurchased in 2009 or 2010. If you make this election, you cannot exclude, for the taxable year of the election or any subsequent taxable year, the income from the cancellation of such indebtedness based on a title 11 bankruptcy case, insolvency, qualified farm indebtedness, or qualified real property business indebtedness.

Income is deferred until the 5th year after the reacquisition (4th year for reacquisitions in 2010), then the income is included ratably over the following 5 years.

The debtor must include an election statement with the tax return in the year the debt is reacquired. The statement must clearly identify the debt instrument and the amount of income deferred.

If elected, certain exclusions for cancellation of debt income would not apply to the income from the discharge of such debt for the year of the election or any later year.

For more details, including how to make the election, see section 108(i).

S Corporation Built-in Gains Tax

For tax years beginning in 2009 or 2010, no tax is imposed on the net recognized built-in gain of an S corporation after the 7th tax year in the recognition period. For more information, see section 1374.

Partial Exclusion Increased for Gain From Certain Small Business Stock

Exclusion of gain from the sale of qualifying small business stock is increased to 75% for stock acquired after February 17, 2009, and before 2011.

For more information, see section 1202(a)(3).


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