Business Corner

Minimum wage hike, tax breaks clear Congress

Congress recently approved the first increase to the federal minimum wage in 10 years and $4.84 billion in tax breaks for small businesses to offset the burden. President Bush has signaled that he will sign the bill.

The minimum wage will increase from $5.15 to $7.25 in three stages over the next two years. The first 70-cent step increase will begin 60 days after the president signs the legislation. The changes were tied to a war funding bill that passed 348-to-73 in the House and 80-to-14 in the Senate.

With Democrats pushing for the minimum wage hike, Republicans countered with tax breaks for small businesses. However, the $4.84 billion in tax breaks for small businesses spread over 10 years included in the bill is less than what President Bush was hoping for.

The measure includes $2.6 billion to pay for an extension and expansion of a tax credit program for employers who hire former welfare recipients and at-risk youths, among other groups.

The measure also extends an equipment deduction that allows small businesses to quickly deduct $125,000. The deduction was previously limited to $112,000 and set to expire in 2009. The equipment does not have to be new, just newly purchased and predominantly used for business. Most equipment qualifies for the deduction, including computers, machines, furniture, and cars. Real estate, however, does not qualify.

The bill will also allow married couples who operate unincorporated businesses to file as sole proprietorships.

The measure also includes tax breaks for restaurants, which are expected to be hit hardest by the increase in the minimum wage. And the minimum wage increase will not apply to the cash wage for tipped employees in states that follow federal law.

Seven states already have minimum wages higher than $7.25 an hour, but the Economic Policy Institute, a nonpartisan think tank, estimates that four percent of the workplace earns less than $7.25 an hour.

To pay for the tax breaks, the bill aims to raise $4.4 billion over 10 years via increased tax enforcement. The bill also would close a loop-hole that allows wealthy taxpayers to shelter income by shifting it to their children. v

Reprinted with permission of Small Business Tax News, Copyright 2007; 1-301-951-1240. This information is distributed with the understanding that the editor and publisher are not engaged in legal, accounting, or other professional service. If legal advice or other expert advice is required, the services of a competent professional person should be sought.

Reprinted from Central Vac Professional, July 2007