Compliance February 13, 2007

Ex-Pats Get Tax Guidance from IRS

February 13, 2007 (PLANSPONSOR.com) - The Internal Revenue Service and U.S. Treasury have released guidance on the estimated tax penalty for citizens or residents of the United States living and working abroad.
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In Notice 2007-16, the IRS notes that the Tax Increase Prevention and Reconciliation Act of 2005, enacted in May 2006, changed the maximum amount of foreign earned income and housing costs that may be excluded from gross income under section 911 of the Internal Revenue Code, raising the maximum amount of foreign earned income that may be excluded from gross income to $82,400.

The law also limited the amount of housing costs that may be excluded or deducted under section 911, and further provides that the tax applicable to income not covered by the foreign income exclusion will now be calculated as though the exclusion had not been elected.   These changes are effective for taxable years beginning after December 31, 2005, according to an IRS press release.

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Possible Tax Underpayment

The IRS notes that because these changes are retroactive to the beginning of the taxable year, persons relying on the law as it existed prior to the enactment of TIPRA may have underpaid their estimated tax liabilities for 2006 and may be liable for an addition to tax under section 6654(a).   The IRS will waive additions to tax under section 6654(a) to the extent that the underpayment is attributable to the changes enacted under TIPRA (1) .  

However, this waiver is only available to qualified individuals who file a Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, with their timely filed Form 1040, U.S. Individual Income Tax Return, or Form 1040X, Amended U.S. Individual Income Tax Return.  

About 300,000 individual taxpayers filed Form 2555 and Form 2555-EZ for tax year 2004, the latest year for which data is available, according to the IRS.

(1)Generally, the Internal Revenue Code requires individuals to pay federal income tax as they earn income. To the extent these taxes are not withheld from an individual’s wages, an individual taxpayer must pay estimated taxes in four installments. Section 6654(a) of the Code provides for an addition to tax where a taxpayer fails to make a sufficient and timely payment of “estimated tax.

Benefits February 12, 2007

Survey: Workers Embrace Alternatives to Traditional Retirement

February 12, 2007 (PLANSPONSOR.com) - One quarter of Americans believe they will have a traditional retirement and 41% say they will continue working, but will work less hours, according to a recent survey by Adecco.
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The survey of 527 workers by the workforce solutions firm also found that 18% of respondents planned on retiring from their current career and trying something different and 12% predicted they will retire early, according to a press release on the survey.

“American workers want to contribute well into their older years, which not only enables them to continue earning a salary, but also helps companies maintain a high level of seasoned talent and institutional knowledge,” said Bernadette Kenny, senior vice president of Human Resources for Adecco North America, in the press release. “Companies who tap the older workforce will have a competitive advantage as the talent war continues to unfold,” as workers begin leaving the workforce over the next 15 years.

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The survey also looked at how workers viewed their career opportunities, with 85% of American workers saying their career options are “promising.” That number rose even higher for business owners and those in management positions.

Men reported being more optimistic (88%) than women (81%) about their career opportunities.

The results are based upon telephone interviews conducted January 12-15, 2007 with a representative sample of 527 employed adults who were identified in an ORC CARAVAN survey of a nationally representative sample of 1,022 adults age 18 and over (507 of whom are men and 515 are women).

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