December is poised to be an important month for federal tax legislation as members of Congress work to finalize heath care reform, a possible jobs bill and more before the new year. Their ambitious agenda may keep lawmakers in Washington, D.C. beyond their scheduled mid-December holiday recess.

Jobs and health care

Two issues are dominating year-end legislation in Congress: jobs and health care. Democratic leaders in the House are expected to shortly propose new and extended tax incentives to encourage job growth. Several temporary employment-related incentives may be extended, such as the Work Opportunity Tax Credit.

In health care news, the Senate is expected to vote on its version of health care reform, the Patient Protection and Affordable Care Act of 2009, in December. The House approved its bill, America’s Affordable Health Care Act, in November. House and Senate conferees will have to draft a compromise bill. The timetable for a final bill is still uncertain.

Negotiations are expected to be difficult over how to pay for health care reform. The House bill includes a surtax on higher income individuals. The Senate is expected to approve a new excise tax on high dollar health insurance plans.


Newly introduced legislation, the Tax Extenders Act of 2009, would extend a host of popular but temporary tax incentives. These tax breaks, known as “extenders,” are temporary but are usually renewed every year.

¬†Some of the more popular tax breaks for individuals are the state and local sales tax deduction, the teachers’ classroom expense deduction and the higher education tuition deduction. Many businesses are lobbying for an extension of the research tax credit and 15-year straight line cost recovery for leasehold, restaurant and retail improvements. The bill would also extend several charity-related tax breaks, such as enhanced deductions for contributions of food and computers along with tax-free distributions from IRAs for charitable purposes.

War surtax

Several Democratic leaders in the House and Senate have endorsed the idea of an across-the-board surtax to fund the wars in Iraq and Afghanistan. Congress last imposed a wartime surtax in the 1960s to fund the war in Vietnam. The White House is reportedly cool to the idea.

More bills

A number of other tax-related bills are awaiting action in the House and Senate. Legislation has been proposed to extend:

  • 2009 federal estate tax rates and exemption amounts to 2010,
  • COBRA premium assistance
  • Exclusion for unemployment benefits
  • Bonus depreciation
  • Small business expensing
  • National disaster assistance and more

Recent legislation

In November, Congress passed the Worker, Homeownership and Business Assistance Act of 2009 (2009 Worker Act). The new law makes important taxpayer-friendly changes to first-time homebuyer credit and the carryback rules for net operating losses (NOLs).

The 2009 Worker Act allows all businesses, and not just small businesses, to carry back an NOL from an applicable tax year for three, four or five years. The IRS issued guidance on the new NOL rules in November, which explains how and when a taxpayer may elect to carry back an NOL.

The IRS is expected to release guidance on the homebuyer credit shortly. The 2009 Worker Act not only extends the homebuyer credit for first-time buyers, it also provides a reduced credit for qualified long-time homeowners.

If you have any questions about pending federal tax legislation, please contact our office. Our office will keep you posted of developments.