Recently, both houses of Congress overwhelmingly approved legislation that will have an impact on your 1999 tax returns. The legislation extended many expired (or expiring) tax provisions until December 31, 2001. The House approved the extenders on November 18th by a 418-2 vote as part of a conference report on the so-called "Ticket to Work" bill (H.R. 1180). The Senate cleared the conference report on November 19th by a 95-1 vote. President Clinton's signature, while expected, has not yet been secured, so don't count your chickens before they hatch. We'll tell you when the President actually signs the bill. But, since all indications are that the legislation will be signed, I thought that we would take a few minutes to see the impact of this new law, both for 1999 and into the future.

Alternative Minimum Tax (AMT) for non-refundable credits: As we have discussed here for many months, the rules that allowed various non-refundable credits to reduce both regular and AMT taxes was set to expire on December 31, 1999. What good would these credits be if they only reduced your regular taxes and not your AMT taxes? For many, no good whatsoever. And Congress appears to have understood the problem...and did something about it. Thanks guys (and gals)!

Because of this legislation, your non-refundable credits (including the child credit, the dependent care credit, credit for the elderly, adoption credit, the home mortgage credit, and the Hope and Lifetime Learning education credits) will reduce both your regular tax and your AMT tax. And, this will be true for tax years 1999, 2000, and 2001. We'll have to sweat out similar extender provisions around this time in 2001, but at least we know that the credit relief is certain for the next two years.

Research Credit: The legislation extends the research credit through June 30, 2004. This is a business provision that won't impact many of you. (Maybe it's something you can use to impress your friends with your tax knowledge or even win a bar bet.) But this credit can have a significant impact on a number of companies... even companies that you might hold in your portfolio. So, this credit being extended might help you indirectly (via stock appreciation). And, if one (or more) of your holdings takes significant advantage of the research credits, you might want to keep the June 30, 2004 expiration date in the back of your mind. Nevertheless, we'll not spend any real time on this issue.

Employer Provided Educational Assistance: The legislation extends the present exclusion for employer-provided educational assistance through December 31, 2001. The provision applies to courses beginning after May 31, 2000 and before January 1, 2002. The education assistance portion of the IRS code has been used, abused, discarded, resurrected, and tinkered with so much over the last five years that many employees (and employers) don't even know where they stand anymore. If this is something that has meaning to you, make sure you check out the current provisions with the Human Resources and/or Benefits team at your place of employment. They should be able to provide you with the current rules and how they may benefit you.

Rum Excise Tax: The legislation includes a temporary increase in the excise tax on rum coming from Puerto Rico and the U.S. Virgin Islands from July 1, 1999 through December 31, 2001. I not only bring this up because I fear the cost of my next Cuba Libre might increase, but also to point out that tax legislation deals with many, many issues.

Washington, D.C. Homebuyer Credit: If you are considering purchasing a home in the Washington, D.C. area, you should know that the special Washington, D.C. first-time homebuyer credit has been extended to cover residences purchased on or before December 31, 2001.

Year 2000 Penalty Relief: The legislation includes the provision permitting the IRS to postpone (on a taxpayer-by-taxpayer basis) certain tax-related deadlines for a period of up to 90 days for a taxpayer affected by a Y2K-related failure. It also permits the abatement of interest, penalties, additions to tax, and additional amounts. To receive the relief, the taxpayer must have made good faith and reasonable efforts to avoid any Y2K-related failures and problems. So, if the world comes to an end in just a few short weeks, you can hunker down in your bunker... secure in the thought that you may have an additional 90 days to process some of your IRS paperwork.

Estimated Tax Safe Harbor Provisions: As you should be aware (if you're not, read more about this issue in the Archive area check out the article entitled "Estimated Taxes"), if you have enough taxes withheld in the current year (either via withholding and/or qualified estimated tax payments), you can have a very large balance due to Uncle Sammy on April 15th and avoid any underestimated tax penalties on that large balance due. This is true if you can qualify under the "safe harbor" provisions. Well, you should know that the safe harbor provisions have been made a bit more stringent with this legislation.

If your adjusted gross income is more than $150,000 ($75,000 for married filing separate), your safe harbor percentage provisions have been increased. For withholding/estimated tax payments made in 2000, the safe harbor percentage is 108.6% (up from 106%). For 2001, the safe harbor percentage has been increased to 110% (up from 106%). So, this is something that will impact you in the very near future... especially if you want to use the "safe harbor" provisions to protect yourself from an underpayment penalty for tax year 2000. So be aware that these changes are out there.

There are a number of other provisions in the legislation. They may impact any number of people, but are not really worth dealing with here. If you would like to understand more about the legislation, visit the Library of Congress Thomas website and check out H.R. 1180. You'll want to pay particular attention to Title V of the bill. I don't believe that there is any discussion about these provisions at the IRS website, so at this time you may be on your own to research this issue.

December 17, 1999

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