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The Job Creation and Worker Assistance Act of 2002

March 9, 2002: Today President Bush signed into law the Job Creation and Worker Assistance Act of 2002, a bill designed to provide certain measures of tax relief for businesses and individuals, along with extended unemployment benefits for individuals who remain unemployed as a result of the recent recession.
The bill contains several high-impact provisions for businesses, some of which are retroactive to 2001. The House and Senate were finally successful in agreeing upon an economic stimulus bill without additional tax rebates and accelerated tax rate cuts. Also absent from this bill are tax relief measures related to health insurance and reduced payroll taxes for small businesses, both of which had been strongly debated in earlier stimulus bills.

Below you’ll find summaries of the major provisions affecting individuals and businesses. Provisions that are marked with asterisks (*) are effective at some point in 2001, so if you've already filed your 2001 tax return, read these provisions carefully to determine whether they apply to your 2001 tax situation. You can file an amended return if you need to.

Provisions Affecting Primarily Businesses

Provisions Affecting Primarily Individuals

Provisions Affecting New York City Businesses and Residents

Provisions Affecting Primarily Businesses

*30% Bonus Depreciation Deduction

New "additional" depreciation deduction equal to 30% of the "adjusted basis" (usually the cost) of "eligible" property.
Taxpayers can take a Section 179 expense deduction, AND this bonus depreciation deduction, AND a normal depreciation deduction in the first year, calculated in that order.
Example: your business purchases, and starts using, office equipment for $100,000 on January 5, 2002. You may take in 2002:
A Section 179 expense deduction of $24,000, AND
The new bonus depreciation of $22,800 ($100,000 - $24,000 = $76,000 times 30%), AND
Normal first year depreciation calculated on the remaining cost of $46,000 ($100,000 - $24,000 - $22,800 = $53,200).
Eligible property must meet these requirements:
Must be subject to regular MACRS depreciation rules, and
One of the following must apply:
Must have a depreciation life of 20 years of less (see IRS Publication 946 for lists of lives for property -- this includes equipment, computers and peripherals, office equipment, and many other types of property businesses commonly buy), OR
Must be "water utility property", OR
Must be computer software that is normally depreciated (as opposed to "amortized"), OR
Must be leasehold improvement property (improvements made to commercial real estate that are placed into service more than 3 years after the building itself was first placed into service).
Important dates must be met:
The original use of the property must start on or after September 11, 2001, AND
The taxpayer taking the deduction must buy (or start construction of) the property between September 11, 2001 and September 10, 2004, inclusive, AND
The property must be placed into service before 2005.
The deduction applies for both regular taxes and alternative minimum tax (AMT).
*Auto Depreciation Deduction Limit

The limitation on the amount of depreciation that can be taken on eligible "luxury" automobiles is increased in the first year by $4,600.
This increase in the cap on depreciation for luxury autos occurs as a result of the 30% depreciation deduction provision above -- it is not a separate provision.
Eligibility of autos follows the same requirements as "eligible property" above.
*Increased Net Operating Loss Carryback Periods

Net operating losses arising from tax years that end in 2001 or 2002 may now be carried back five years.
Previously, such losses could be carried back only two years.
"Net Operating Losses" for individual taxpayers generally arise from business losses reported on your return. Form 1045 is used to determine the amount of your operating loss. If your business suffered losses during 2001, complete page 2 of Form 1045 to see if you have a net operating loss arising from 2001.
If it turns out that you do have a loss, you must carry this loss back five years (to 1996, then forward) unless you file an election to "forgo" the carryback period.
"Carrying back" a loss means that you refigure the old year's taxable income and taxes with taking as much of the loss into account as can be used by that year. This way, you may get a refund, partially or completely, of taxes you paid in that earlier year.
Net operating losses occurring under special circumstances also receive the five-year carryback period. These include:
Losses arising from casualty losses or thefts.
Losses attributable to certain Presidentially declared disaster areas.
Experience Method of Accounting Now Limited

The non-accrual experience method of accounting is now available only for amounts to be received for:
Qualified services performed (health, law, engineering, architecture, accounting, actuarial, performing arts or consulting services), and
Services provided by certain small businesses (business whose average annual gross receipts aren't over $5 million)
Previously any accrual-method business could elect to use this method of accounting.
This non-accrual experience method basically permits accrual-method businesses to NOT include in taxable income any amounts due for services the business performs, which, on the basis of experience, won't be collected. Certain conditions apply.
This change becomes effective for tax years that END after the date this bill is signed into law. Thus, any business with a calendar year tax year (ending in 2002) or a year that ends after March 9, 2002, will be affected.
Extension of the Work Opportunity Tax Credit

This credit, which encourages businesses to employ workers belonging to certain targeted underprivileged groups, expired at the end of 2001.
The credit has now been extended for two years (2002 and 2003).
Extension of the Welfare to Work Credit

This credit, which encourages businesses to employ workers receiving family assistance payments on a long-term basis, expired at the end of 2001.
The credit has also been extended for two years (2002 and 2003).
Other Provisions

Deferral of the phase-down of the deduction for clean-fuel property until 2004
Extension of the suspension of the 100% of net-income limitation on the percentage depletion method until 2004
Extension of Archer Medical Savings Accounts program through 2003
Extension of the Indian employment credit and the accelerated depreciation rules for Indian reservation property, through 2004
Provisions Primarily Affecting Individuals

Additional Unemployment Assistance (NOT a tax provision!)

Extended unemployment benefits for certain unemployed workers to the tune of up to 13 weeks
This brings available unemployment benefits to 39 weeks for most states.
Requirements:
Benefits are available to workers who filed their first claims on or after March 15, 2001, AND who are still unemployed after having exhausted their regular unemployment benefits.
Such workers must have previously worked 20 weeks of full-time insured employment (or the equivalent in insured wages) to be eligible.
Statistics reported by the Joint Committee on Taxation -- indicative of these times:
The average duration for workers to be on unemployment was 14 weeks in 2001.
During fiscal 2001, 28% of unemployment recipients used ALL of their eligibility for benefits.
New Deduction for Teachers

A new deduction for teachers for classroom materials will be available for up to $250 per year for expenses paid for books, supplies (nonathletic), computer equipment and software, and other equipment or supplementary materials used by the teacher in the classroom.
This deduction can be taken regardless of whether the teacher itemizes deductions on Schedule A, as the deduction will be taken on page 1 of Form 1040.
Amounts over and above the $250 may still be taken as miscellaneous itemized deductions on Schedule A, and will, of course, be subject to the 2% floor applicable to such deductions.
The deduction is available for teachers of kindergarten through 12th grade who work in a school for at least 900 hours during a school year, and also includes expenditures by:
Instructors
Counselors
Principals
The deduction is available for 2002 and 2003.
Credits Escape the AMT Limits -- for Another Two Years

Starting in 2002, certain credits were to once again become limited by a taxpayer's alternative minimum tax. These include:
The dependent care credit
The credit for the elderly and disabled
Both education credits
The mortgage interest credit
The Washington D.C. Homebuyer credit
This limitation effectively meant that the credits could be taken only until your regular tax amount, as reduced by the credits, became equal to your tentative minimum tax amount (as calculated on Form 6251). Once the regular tax was equal to the tentative minimum tax, no more of these credits could be taken -- they were lost forever.

The new law now removes this limitation -- at least for 2002 and 2003. Perhaps 2004 will bring further changes, hopefully in the alternative minimum taxation area.
More Foster Care Payments Excluded

More foster care payments can be excluded from your taxable income under this new law. The new law now:
Includes foster care payments made to you by any placement agency licensed or certified by your state or local government or any entity designated by that state or local government to make such payments (previously the payments had to be from the government itself or from a tax-exempt placement agency in order to be tax-free)
More individuals are considered "foster care individuals" under the new law -- it now includes individuals placed by a qualified foster care placement agency regardless of whether the individual is under 19 at the time of placement. Previously the age 19 requirement applied in order for the payments to be tax-free.
This change takes effect beginning in 2002.
*Allowance of Electronic Forms 1099

Taxpayers may now choose to receive their 1099 forms electronically (obviously provided that the issuer provides this service).
This was previously prohibited by law -- issuers were required to use the mail or deliver them in person.
This is effective immediately upon enactment.
Provisions Affecting New York City Businesses & Residents

Definition of the "New York Liberty Zone"

Many tax provisions are available for businesses and individuals in this zone.
The zone covers the area in Manhattan ...
On or south of Canal Street
East Broadway (east of its intersection with Canal Street)
Grand Street (east of its intersection with East Broadway)
*30% Bonus Depreciation Deduction

New additional depreciation deduction equal to 30% of the "adjusted basis" (usually the cost) of "eligible Liberty Zone" property.
This deduction is in lieu of the other 30% deduction described above for all businesses; this one applies only to Zone property.
Taxpayers can take this bonus depreciation deduction, and a Section 179 expense deduction, and normal depreciation deduction in the first year, calculated in that order
Eligible property must meet these requirements:
Must be subject to regular MACRS depreciation rules, and
One of the following must apply:
Must have a depreciation life of 20 years of less (see IRS Publication 946 for lists of lives for property -- this includes equipment, computers and peripherals, office equipment, and many other types of property businesses commonly buy), OR
Must be "water utility property", OR
Must be certain commercial real property or residential rental property (to rehabilitate damaged property or to replace destroyed or condemned property due to the attacks), OR
Must be computer software that is normally depreciated (as opposed to "amortized"), OR
Substantially ALL of the use of the property must be in the Liberty Zone
Important dates must be met:
The original use of the property must start on or after September 11, 2001, AND
The taxpayer taking the deduction must buy (or start construction of) the property on or after September 10, 2001, AND
The property must be placed into service before 2007 (2010 for real estate).
The deduction applies for both regular taxes and alternative minimum tax (AMT)
Increased Section 179 Expense Deduction

The current $24,000 Section 179 expense deduction for property increases for qualifying property used in the Zone.
The increase (added to the $24,000) is the lower of:
$35,000, OR
the cost of the qualifying property placed into service in that tax year.
Qualifying property:
Section 179 property bought and put into service after September 10, 2001 and before 2007.
Must be used in the taxpayer's active trade or business in the Zone
Must be first used in the Zone after September 10, 2001.
The phase-out of the Section 179 deduction is reduced for Zone property as well
The increased deduction is available for tax years 2002 through 2006.
Expanded Work Opportunity Tax Credit (WOTC) for NYC

This existing credit will now be available for Liberty Zone taxpayers -- businesses who employ individuals who:
Perform substantially all of their services in the Zone
Perform substantially all of their services in NYC for a business that relocated from the Zone to elsewhere within NYC as a result of the destruction wrought by the terrorist attacks
The maximum credit is $2,400 per qualified employee (figured as 40% of a max of $6,000 of wages) in each tax year
The credit is applicable to wages paid for work performed in 2002 and 2003 by these employees
The employee must, on average, employ no more than 200 employees during the tax year for which the credit is taken in order to be eligible for the credit.
Any WOTC credit applicable to Zone employees is allowed against the AMT.
Extended Replacement Period for Involuntary Conversions in the Zone

Taxpayers seeking to defer gain from an involuntary conversion of property within the Zone as a result of the attacks have up to five years (instead of the normal two years) to replace that property in order to meet the gain deferral requirements.
The replacement property must be used in New York City.
Special Leasehold Improvement Depreciation Life

Any leasehold improvement property placed into service in the Zone after September 10, 2001 and before 2007 may be depreciated over five years instead of the normal depreciation life (39 years for improvements to leased commercial property).
The straight-line method of depreciation must be used
The related AMT depreciation life is 9 years.


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