House Republicans and Senate Democrats Introduce Small Business Tax Relief Legislation

In recent days, both House Republicans and Senate Democrats have unveiled tax legislation focused on incenting small business growth. On March 21, House Republicans announced legislation that would grant a 20% tax cut to small businesses with fewer than 500 employees as a way to spur job creation. On March 26, Senate Democrats introduced the Small Business Jobs and Tax Relief Bill of 2012, a small business growth package that includes a payroll tax incentive to create new jobs and an extension of the current 100% depreciation deduction for new equipment purchases.

House Bill- H.R. 9

On March 21, House Majority Leader Eric Cantor, R-Va., unveiled the Small Business Tax Cut Act that would grant a 20% cut to small businesses with fewer than 500 employees to spur job creation. The legislation would cost $45.9 billion and would be paid for by reduced federal spending.

Under this legislation, small businesses owners would be allowed to deduct 20% of their income from taxes, regardless of how they are organized. Generally, the deduction would be limited to 50% of their Form W-2 wages, and for this purpose, some partnership distributions would be treated as wages. The deduction is also tied to growth of U.S. jobs by basing the deduction on domestic business income of qualified small businesses. The deduction would be applicable for a business’s first taxable year beginning after December 31, 2011.

Senate Bill

On March 26, Senate Democrats unveiled the Small Business Jobs and Tax Relief Bill of 2012. The Senate bill provides for: 

  1. Incentive For Small Businesses to Add New Jobs This Year
    • 10% income tax credit on new payroll added in 2012 through either hiring or increased wages
    • Maximum increase in eligible wages of $5 million per employer 
    • The amount of the credit capped at $500,000
  2. Extends 100% Depreciation Deduction For Certain Property
    • Extend 100% first-year depreciation for one year, effective for qualified property acquired and placed in service before January 1, 2013, or
    • to January 1, 2014 for certain longer-lived and transportation property

A vote on the House measure is expected by April 15. The Senate Democratic leadership intends to bring their bill to the Senate floor in the coming weeks.

Think these bills will have smooth bi-partisan support through both houses? Think again. The Democratic Policy Communications Center Fact sheet to the Small Business Jobs and Tax Relief Bill of 2012 contained the following statement:

“Senate Democrats have proposed the Small Business Jobs and Tax Relief Act of 2012, which contains common sense tax cuts for pay, raises, hiring, and spending on new equipment. Unlike Republican proposals that would just provide a profit-padding tax giveaway under the guise of small business support, the Small Business Jobs and Tax Relief Act would make it easier for small businesses to invest in themselves and their workers”

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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