Due to the last three lackluster monthly jobs reports, the Senate appears to be trying to fast track Senate Bill 2237 "Small Business Jobs and Tax Relief Act" to passage. This bill provides the following:
- A new income tax credit equal to 10% of the excess compensation paid in 2012 over 2011. These compensation levels are capped at the current 2012 wage base of approximately $110,000.
- The maximum amount of wages allowed to be counted is $5 million, therefore, the maximum credit allowed is $500,000.
- Any unused credit can be carried forward, but not back.
- Extension of the 100% bonus depreciation to December 31, 2012.
- 50% bonus depreciation would now take place in 2013 instead of the current 2012 date.
- Expansion of election to take AMT credits instead of bonus depreciation.
For farmers, most likely the extension of 100% bonus depreciation will be more beneficial than the payroll credit. However, for those farmers that have taken lower salaries in previous years, this may be a way of catching up with minimal cost. After the tax benefit of the deduction of the employer's share of the FICA and Medicare tax portion, the net cost of these extra wages may be completely offset with this new payroll tax credit.
However, this Bill is subject to debate and still must pass the House. They have a competing bill that calls for a 20% income tax deduction instead of a credit. The 20% deduction would be based upon the net income of the business and would be limited to 50% of W2 wages paid for non-owners.
My guess is that both the Senate and the House want to pass some type of bill to both extend bonus depreciation and provide some incentive to increase jobs. What the final bill will look like is anybody's guess, but I think we may see something by the end of the month.