AGC last week signed a letter with over 30 business groups to express concern about misinformation circulating regarding multiemployer defined benefit plan relief proposals before Congress.  Recent press stories have referred to the Preserve Benefits and Jobs Act being debated in the House, and the Create Jobs and Save Benefit Act being debated in the Senate, as a "union bailout" and to multiemployer plans as "union plans."  The letter states that contributions to multiemployer plans are funded entirely by employers and not unions.

The majority of defined benefit plans have been negatively impacted by the recent financial crisis, and the median investment loss by multiemployer plans has exceeded 20 percent.  The losses occurred in the first year of new aggressive funding rules required by the Pension Protection Act, giving rise to concerns for potential additional contribution increases, deep benefit cuts, or both.  The financial crisis also exacerbated funding problems that certain multiemployer plans were already facing prior to the market downturn.

The House proposal aims to protect employers contributing to multiemployer plans from the immediate funding crisis by providing plans additional time to make up for the losses beginning in 2008.  Both the House and Senate proposals also seek to correct problems associated with joint and several liability rules that govern multiemployer plans and require employers in the plan to become responsible for paying the accrued benefits of all the workers in the plan, including those who never worked for them.  This situation is particularly acute in the Teamsters Central States Plan where several trucking industry employers have gone out of business over the years, leaving the remaining employers responsible for paying benefits to those firms' former employees.

As part of a package of tax provisions, infrastructure programs and unemployment payments, the U.S. House of Representatives Friday passed a number of provisions designed to provide multiemployer plans with immediate funding relief.  The American Jobs and Closing Tax Loopholes Act, H.R. 4213, would allow multiemployer pension plans to elect a 30-year amortization period for certain losses incurred in 2008 and/or 2009. The bill also extends the smoothing period from five to 10 years and allows plans the option of up to a five year extension of their funding improvement or rehabilitation periods.  H.R. 4213 now goes to the Senate for its consideration.

The Senate Health, Employment, Labor, and Pensions Committee last Thursday held a hearing on multiemployer pension plans, including the Senate proposal.  The hearing was a first step towards Congressional action on additional multiemployer plan relief called for in both the House and Senate proposals that would facilitate mergers and alliances of funds and allow the Pension Benefit Guarantee Corporation (PBGC) to provide assistance to certain plans (e.g., Central States) through a process called "partitioning" to lower long-term costs.  The bill would also update PBGC benefit guarantees.

For more information, contact Karen Lapsevic at (202) 547-4733 or lapsevick@agc.org.

The Internal Revenue Service (IRS) has posted on its website the newly-revised payroll tax form that most eligible employers can use to claim the special payroll tax exemption that applies to many new workers hired during 2010.  The payroll tax exemption and the related new hire retention credit were created by the Hiring Incentives to Restore Employment (HIRE) Act signed into law on March 18.

Employers who hire unemployed workers after February 3, 2010 and before January 1, 2011 may qualify for a 6.2 percent payroll tax incentive, in effect exempting them from the employer's share of Social Security tax on wages paid to these workers after March 18.  The employee's 6.2 percent share of Social Security tax and the employer and employee's shares of Medicare taxes still apply to all wages.  Form 941, Employer's Quarterly Federal Tax Return, revised for use beginning with the second calendar quarter of 2010, will be filed by most employers claiming the payroll tax exemption for wages paid to qualified workers.  The instructions for the new Form 941 are also available. 

The HIRE Act requires that employers get a signed statement from each eligible new hire, certifying that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer.  Employers can use new Form W-11 released last month to meet this requirement.

In addition, for each qualified employee retained for a least a year whose wages did not significantly decrease in the second half of the year, businesses may claim a new hire retention credit of $1,000 per worker on their income tax return. 

Further details on both the tax credit and the payroll tax exemption can be found in a list of answers to frequently asked questions about the new law posted on IRS.gov.

The House postponed a vote this week on a bill that would extend various expired tax provisions, unemployment and health care programs, and infrastructure initiatives as part of the Democratic Congress' jobs agenda. 

The American Jobs and Closing Tax Loopholes Act, H.R. 4213, would include a number of provisions of benefit to the construction industry, including extension of the Build America Bonds program, lifting of the cap for water infrastructure projects financed through private activity bonds, and multi-employer pension plan funding relief.  However, the bill comes at a cost to the industry as well.  To offset the cost of the tax provisions, the bill would change the way carried interest profits are taxed, by taxing them at the higher ordinary income rates rather than at the lower capital gains rate, a move that would further hurt the struggling real estate development community.  The bill would also impose employment taxes on all income earned by service professionals who are also shareholders of an S corporation. 

AGC is evaluating the legislation and its impact on the construction industry and working with Congress to find ways to be able to fully support the bill.

House and Senate tax writing panels are working to deal with a number of outstanding tax issues facing Congress in 2010.

First, despite each chamber having passed its own version of the annual "tax extenders" package that would extend for one year roughly $30 billion in tax provisions that expired on January 1, the House and Senate remain unable to reach an agreement on how to offset the cost of the legislation.  The tax extenders bill includes extensions of tax incentives useful to construction, including the 15-year shortened cost recovery period for restaurant improvements and new construction, leasehold and retail improvements, and a short-line rehabilitation tax credit.

Second, the Senate Finance Committee is considering how to move forward on a small business tax relief and infrastructure bill the House passed in late March that includes, among other things, an extension of the successful Build America Bonds program into 2013.  In addition, the Senate may add an extension of 50 percent bonus depreciation from the Recovery Act, along with the an extension of enhanced section 179 expensing that is included in the House-passed bill.  Depending on whether sufficient offsets can be found, leadership in both chambers have expressed interest in resolving these two measures prior to Memorial Day.

Finally, the House and Senate are working on ways to address the lapsed estate tax and the expiration of the 2001 and 2003 tax cuts at the end of 2010.  The House passed legislation in December that would have extended the 2009 estate tax rate of 45 percent with an exemption of up to $3.5 million per spouse.  However, a bipartisan group of Senators is trying to lower the rate to 35 percent and increase the exemption to $5 million per spouse and is seeking a vote this spring on their proposal.  If no action is taken in Congress, the estate tax will be reinstated at a 55 percent top rate and $1 million exemption level. 

The Senate Budget Committee this week took initial steps towards continuing the 2001 and 2003 tax cuts for the middle classes.  In its fiscal year 2011 budget resolution, the committee included a permanent extension of current policy for couples with incomes below $250,000 and singles with incomes below $200,000.  The resolution calls for allowing the current 35 percent tax bracket to increase to 39.6 percent on January 1, 2011, and the 33 percent bracket to bump up to 36 percent. 

The resolution also contains reconciliation instructions that could allow the Senate to pass tax legislation with a simple majority, rather than by overcoming a 60-vote threshold needed to end a filibuster. 

AGC is monitoring developments on these important pieces of legislation.  AGC supports lowering the federal burden on individuals, construction companies, and other business as a means of promoting investment, business development and business expansion.

House and Senate Democrats are considering whether to subject income earned by shareholders of S corporations engaged in service businesses to payroll taxes in an effort to raise revenue to pay for the annual tax extenders bill or other tax legislation this year. 

S corporation income is not directly taxed.  Instead, S corporation earnings "flow through" to shareholders who are taxed at the individual level as ordinary income.  S corporation shareholders who are active in their business, however, pay themselves a salary, on which they pay self-employment taxes that go towards Social Security and Medicare like traditional employee payroll taxes.

Applying payroll taxes to certain S corporation profits could raise anywhere from $10 to $15 billion.  Roughly $30 billion is needed to offset the cost of the annual tax extenders bill, which would extend for one year certain expired tax provisions, such as the research and development tax credit and the 15-year shorted cost recovery period for retail, restaurant, and leasehold improvements. 

Critics of the proposal argue that it would violate the long-standing principle that payroll taxes be applied solely to wages received for labor, not capital income.  However, the recently-enacted health care bill applied a 3.8 percent Medicare payroll tax to unearned income, including that earned by passive shareholders in S corporations.  Moreover, the proposal is inconsistent with the health law which exempted S corporation income earned by active shareholders.

AGC is a member of The S Corporation Association of America and will oppose this proposal.

The Internal Revenue Service (IRS) Wednesday released a new Form W-11, the affidavit individuals must complete to confirm that they are qualified employees under a new law that provides tax incentives for businesses hiring new workers.  The IRS also released a draft Form 941, Employer's Quarterly Federal Tax Return, on which employers can claim the payroll tax exemption for eligible new hires beginning with the second calendar quarter of 2010.  The IRS announced that the final form will be released next month along with the form's instructions.

Under the Hiring Incentives to Restore Employment (HIRE) Act, employers can receive an exemption from their 6.2 percent share of Social Security payroll taxes on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.  To qualify, employees must fill out the new Form W-11 under penalty of perjury to certify they have not been employed for more than 40 hours during the 60-day period they were unemployed.

The HIRE Act also provides an additional income tax credit of up to $1,000 for every new employee retained for 52 weeks. 

The FAQs regarding the HIRE Act's employer tax benefits are available at IRS' website here.

Congress is expected to return to a busy spring agenda that will include incentives to encourage energy efficiency and renewable energy projects to create jobs and reduce energy consumption and related emissions.  The House Ways and Means Committee next Wednesday is scheduled to hold a hearing on "Energy Tax Incentives Driving the Green Job Economy" to consider tax options for an energy bill that will be debated this summer.  The hearing also will examine the roughly $40 billion in energy incentives enacted in 2008 and 2009 for ethanol, biodiesel, wind, solar, electric vehicles, carbon capture, and energy efficiency activities.  Many of these incentives expire at the end of 2010 and up for possible renewal or modification. 

AGC is working with a number of organizations that jointly authored a letter circulating this week to the Ways and Means Committee in support of increasing the Energy Efficient Commercial Building Tax Deduction from $1.80 per square foot to $3.00 per square foot. 

In addition, AGC is supporting a legislation that would provide $6 billion in federal investment, through rebates and financing incentives, to cover about 30 percent of the cost of installing energy efficient products and/or providing energy efficiency-related services (such as energy audits) during 2010 in commercial and multifamily residential buildings.  On March 4, Senator Jeff Merkley (D-Ore.) introduced the proposal as the "Building STAR Energy Efficiency Rebate Act of 2010" (S. 3079).  It is estimated that funding for $6 billion for the Building STAR program would spur $18 to $24 billion in total spending, creating up to 200,000 jobs in the construction, manufacturing, and other related industries.  The program is designed to work quickly and includes simplified application procedures for building owners.

Building STAR is the companion to Home STAR, a similar rebate program for home owners being developed by Senator Jeff Bingaman (D-NM), Chairman of the Senate Energy and Natural Resources Committee, held a hearing in March on both proposals. 

A House companion bill may be introduced shortly. 

AGC is a participating organization in the coalition that developed and is promoting Building STAR.

The Internal Revenue Service (IRS) Wednesday released a draft of the new Form W-11, the affidavit individuals must complete to confirm that they are qualified employees under a new law that provides tax incentives for businesses hiring new workers.  

Under the Hiring Incentives to Restore Employment (HIRE) Act, employers can receive an exemption from their 6.2 percent share of Social Security payroll taxes on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.  To qualify, employees must fill out the new Form W-11 under penalty of perjury to certify they have not been employed for more than 40 hours during the 60-day period they were unemployed.

The HIRE Act also provides an additional income tax credit of up to $1,000 for every new employee retained for 52 weeks. 

The FAQs regarding the HIRE Act's employer tax benefits are available at IRS' Web site here.

In his first hearing as chairman of the House Ways and Means Committee, Rep. Sander Levin (D-Mich.) pushed for legislation that would provide tax incentives for small businesses and lending assistance for infrastructure projects.

AGC sent a letter to committee members in advance of the markup highlighting its support for several provisions, including:

• Relief for small businesses from IRS Section 6707A penalties, which can be stiff for contractors who unwittingly fail to disclose listed transactions to the IRS.
• Extension of the Build America Bonds (BAB) program. State and local governments have used the widely successful BABs to finance more than $80 billion in infrastructure programs.
• Removal of the private activity bond volume cap for water and wastewater projects. The private activity bond cap removal is expected to leverage nearly $2 billion in private sector dollars waiting on the sidelines.
• Extension and reallocation of the Recovery Zone Bond program. The Recovery Zone Bonds will be extended and reallocated based on unemployment in a locality, allowing the hardest hit areas to receive a higher amount of funding opportunities.

AGC asked for the legislation to include "Fresh Start" and ensure that all of the losses are subject to 30-year amortization for pension plans, as pension relief was included in early drafts of the bill, but was dropped from the legislation prior to the markup.

One section of the bill that AGC opposed in its letter would apply continuous levy to employment tax liability of certain federal contractors.  This provision would allow the IRS to levy employment taxes on federal contractors prior to a Collection Due Process (CDP) hearing. AGC opposes a collection of a tax that has not been subjected to due process.

The full House is expected to consider the new legislation as early as next week.

Senator Jeff Merkley (D-Ore.) March 4 introduced the "Building STAR Energy Efficiency Rebate Act of 2010" (S. 3079), a bill that would provide $6 billion in federal investment through rebates and financing incentives. The bill would cover about 30 percent of the cost of installing energy efficient products and/or providing energy efficiency-related services (e.g., energy audits) in commercial and multifamily residential buildings this year.  It is estimated that the $6 billion in funding for the Building STAR program would spur $18 to $24 billion in total spending, creating up to 200,000 jobs in the construction, manufacturing and other related industries.  The program is designed to work quickly and includes simplified application procedures for building owners.

Building STAR is the companion to Home STAR, a similar rebate program for home owners being developed by Senator Jeff Bingaman (D-N.M.), Chairman of the Senate Energy and Natural Resources Committee, which today held a hearing on both proposals. 

AGC is a participating organization in the coalition that developed and is promoting Building STAR and was quoted in a BNA Construction Labor Report article addressing the Building STAR bill.