Many online merchants and their customers are concerned about the new tax law that is currently in the House of Representatives as it would require online merchants to collect sales taxes on all purchases. The legislation is meant to even the playing field between brick-and-mortar business and online businesses; as well add additional revenues to states’ coffers.

One issue that has arisen regarding the IRS and taxpayers are rules surrounding a persons’ emails. Common sense says that personal emails should not be read by the IRS without the IRS obtaining a warrant or the taxpayers’ permission – however, the IRS has not always done that. In fact, until recently, the IRS took the position that the Fourth Amendment did not apply to email.

The IRS’ criminal tax division’s Office of Chief Counsel claimed in the 2009 Search Warrant Handbook “the Fourth Amendment does not protect communications held in electronic storage, such as email messages stored on a server, because internet users do not have a reasonable expectation of privacy in such communications.” Further, the 2009 edition of the Internal Revenue Manual explained that “the government may obtain the contents of electronic communication that has been in storage for more than 180 days” without a warrant.

However, common sense appears to be catching up with the IRS as well as the law. In 2010, the Sixth Circuit Court of Appeals in the case United States v. Warshak found that the federal government must obtain a probable cause warrant before compelling email providers to turn over messages. Initially, the IRS said that Warshak only applied to the Sixth Circuit, but now the IRS has made the decision to follow the Warshak ruling. In Policy Statement 4-120, the service said it will follow the 2010 holding of Warshak and obtain a search warrant in all cases when seeking from an ISP the content of email communications stored by the ISP.

- Annual limitation on deductions for an individual with self-only coverage under a high-deductible health insurance plan is $3,300

- Annual limitation on deductions for an individual with family coverage under a high-deductible health insurance plan is $6,550

- A “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,250 for self-only coverage or $2,500 for family coverage, and the annual out-of-pocket expenses (including deductibles, co-payments and other amounts, but not premiums) do not exceed $6,350 for self-only coverage or $12,700 for family coverage

1. The expiration of the 2% payroll tax holiday
2. The return of personal exemption phase-outs (PEP) and itemize deduction phase-outs (PEASE; named for Don Pease who introduced the original PEP and PEASE legislation in the ’90s)
3. A Medicare tax of 3.8% on net investment income,
4. A Medicare tax on high wage earners of .9%,
5. A new top rate of 39.6% for individuals and trusts, and
6. A new top rate for capital gains and qualified dividends of 20%

Who is affected by these tax increases?

All wage earners will see less in their paychecks this year do to the expiration of the 2% payroll tax holiday.

PEP and PEASE will affect those earning $250K or more (single) and those earning $300K or more (married). Personal exemptions can be 100% phased-out and itemized deductions can be phased-out by 80% depending on how much income an individual or couple make. However, certain itemized deductions will not be hit by the phase-out, and they include (a) medical expenses (which already has a 7.5% of adjusted gross income threshold), (b)investment interest expense (which is already limited to investment income), (C) casualty and theft losses (which already has a $100 per loss event limit and then a 10% of adjusted gross income threshold), and (d) gambling losses (which are already limited to gambling winnings).

The Medicare 3.8% tax on net investment income will affect single individuals with modified adjusted gross income of $200K or more and married couples with modified adjusted gross income of $250K or more. This tax also comes into play for estates and trust income once they reach the highest tax bracket of 39.6%; that tax bracket in 2012 started at $11,650, so estates and trusts with taxable income can be hit with the tax fairly easily if they aren’t distributing their investment income to their beneficiaries.

The .9% Medicare tax on high wage earners will affect single individuals with W-2 earnings of $200K or more and married couples with W-2 earnings of $250K or more. The tax is withheld once an individual (single or married) reaches $200K. Thus, it is possible for single individuals with multiple jobs have more than $200K in W-2 wages and not have the tax withheld (i.e. a single person could earn $150K at one job and $75K at another job for a total of $225K); or for married individuals to have more than $250K in W-2 wages and not have the tax withheld (i.e. one partner earns $190K and the other earns $100K for a total of $290K W-2 wages). In these cases where not enough tax was withheld, the tax will be picked up on the individual’s tax return.

The new 39.6% tax bracket applies to single persons with taxable income of $400K or more and married couples with combined taxable income of $450K or more. Further, the 39.6% rate replaces the 35% rate for trusts in 2013.

Those taxpayers in the 39.6% tax bracket will also be subject to a 20% capital gains and qualified dividends tax rate.

If the Supreme Court decides the petition was valid, the petition will go to the Nevada legislature where they can decide whether to reject it or not act. If the legislature rejects the proposal or does not act on it, the proposed tax hike would then go before voters in 2014.

The tax would be imposed at a rate of 2 percent on the lesser or (a) 70 percent of total revenue, or (2) total revenue minus the cost of goods sold or compensation on businesses with gross revenues of $1 million or more annually.

Individual mandate starts in 2014. Required to obtain basic health insurance coverage or pay a fee to help offset the costs of caring for uninsured Americans; if affordable coverage is not available to an individual, he or she will be eligible for an exemption. The minimum per person penalty in 2014 is the greater of $95 or 1% of household income (cap of $285 per family), it will go to the greater of $325 per person in 2015 or 2% of household income (cap of $975 per family), and to the greater of $695 per person in 2016 or 2.5% of household income (cap of $2,085 per family). The tax is assessed on a pro-rated basis for each month that a person is not covered (i.e. 1/12th of the annual amount for each month not covered).

Can the IRS collect the individual mandate penalty? The law prohibits the IRS from seeking to put anybody in jail or seizing property for simple refusal to pay the tax; also, the IRS cannot file a tax lien or levy. However, it appears the IRS can sue those individuals refusing to pay the penalty in court for double the penalty amount.

Tax credits will be given to those with income between 100% and 400% of the poverty line who are not eligible for other affordable coverage. The tax credit is advanceable and refundable.

In 2014, employers with 50 or more full-time equivalent employees must provide qualifying coverage or pay a penalty. Qualifying coverage is insurance that pays for at least 60% of covered health care expenses for a typical population, and employees pay no more than 9.5% of family income for the employer coverage. Initially, this penalty can range from $2K to $3K per full-time employee. However, if the employer has 30 or fewer full-time employees (employees working 30 hours per week or more) or if none of the employer’s full-time employees receive credits for exchange coverage, there is no penalty.

1. Procedures such as in vitro fertilization (including temporary storage of eggs or sperm).
2. Surgery, including an operation to reverse prior surgery that prevented the person operated on from having children.

Tax freedom day is the first day of the year in which we as United States citizens have earned enough (theoretically) to fund our annual tax burden.

Oh well, at least we get to keep eight and a half months worth of income.

Here’s a link to the calculation:

http://www.taxfoundation.org/news/show/52.html