2012 Legislative Updates

1. 2012 Legislative Updates Utah State Tax Commission

2. Tax Commission Resources • Practitioner Hotline 801-297-7790 or 1-800-662-4335 x7790 • Customer Service 801-297-2200 or 1-800-662-4335 • Technical Research Unit 801-297-7705 or 1-800-662-4335 x7705 • Email the TaxMaster taxmaster@utah.gov • Forms & Publications 801-297-6700 or 1-800-662-4335 x6700 • Taxpayer Advocate Service 801-297-7562 or 1-800-662-4335 x7562 Monday – Friday from 8:00 a.m. to 5:00 p.m.

3. Tax Commission Resources

4. Updates

5. Domicile Defined • Addresses the determination of domicile by setting bright-line tests: • The individual or individual’s spouse claim a personal exemption on their federal individual income tax return for a dependent who is enrolled in a public K-12 school in Utah. • The individual or individual’s spouse is a resident student enrolled in a public institution of higher education in Utah. • The individual or individual’s spouse claims a residential exemption for their primary residence on their Utah property taxes. • The individual or individual’s spouse claims Utah residency on their individual income tax return. • The individual or individual’s spouse is registered to vote in Utah. • Domicile for individuals that do not meet 1-5 above continues to be determined by weight of other evidence per UCA 59-10-136. • If an individual and the individual’s spouse leave the state for 761 consecutive days and they do not return to Utah for more than 30 days in a calendar year they are not domiciled in Utah unless 1-4 above apply. SB 21 (2011) UCA 59-10-136

6. TC-40Bye-Bye Special Instructions • If an individual is considered to have domicile in Utah, the individual’s spouse is considered to have domicile in Utah unless: • The couple is legally separated or divorced. • The individual and the individual’s spouse claims married filing separately on their federal return for the taxable year. • Publication 49, Special Instructions for Married Couples, will be deleted and return instructions have been updated for 2012. • Certain military personnel may still qualify to use special instructions. See Publication 57, Military Personnel Instructions, for more information. SB 21 (2011), 59-10-136(5)

7. Form Updates

8. TC-40 Calculation Amount Changes • Exemption amount on line 11 • From $2,775 for 2011 to $2,850 for 2012 • Phase-out amounts on line 17 for the Taxpayer Tax Credit • Single or Married Filing Separately • From $12,720 for 2011 to $13,029 for 2012 • Head of Household • From $19,080 for 2011 to $19,543 for 2012 • Married Filing Jointly or Qualifying Widow(er) • From $25,440 for 2011 to $26,058 for 2012

9. TC-40 New Exemption for Dependent with a Disability • Allows an exemption for a dependent adult with a disability or dependent child with a disability as part of the taxpayer tax credit. • Adds another exemption into the taxpayer tax credit. The credit amount is 6% of 75% of the amount the taxpayer deducts as a personal exemption on the federal return. • TC-40D revised and reinstated. • Form instructions have been updated for 2012. HB 250 (2012) Code 59-10-1018

10. TC-40Property Tax Declaration • Property owners must declare on their individual income tax return if they are no longer eligible to receive a property tax residential exemption for their primary residence in Utah. SB 21 (2011), 59-10-136

11. TC-40New Page Three • New TC-40, page 3, only has to be submitted if any information is entered. Page 3 includes: • Fiscal Year Filer • Federal Form 8886 Filed • Voluntary Contributions • Utah Educational Savings Plan Refund Application • Direct Deposit to Foreign Account • Property Owner’s Residential Exemption Termination Declaration

12. Tax Credits

13. Alternative Energy Development Tax Incentives • Repeals the alternative energy tax refundable credit and replaces it with two nonrefundable credits. • The Office of Energy Development (OED) will administer the new alternative energy development nonrefundable tax credits. • A new nonrefundable tax credit for alternative energy manufacturing, as determined by the Governor's Office of Economic Development (GOED), with a seven-year carryforward. • Must have a tax credit certificate from either the OED or the GOED. • 59-7-614.7, 59-7-614.8, 59-10-1029, 59-10-1030, 63M-1-3101, 63M-1-3102, 63M-1-3103, 63M-1-3104, 63M-1-3105, 63M-4-501, 63M-4-502, 63M-4-503, 63M-4-504, and 63M-4-505 SB 65 (2012)

14. Life Science and Technology Tax Credit Amendments • Changes the Life Science and Technology tax credit. • Previously: • Could not be claimed by corporations. • For the first three years after the taxpayer invested, they could claim a credit of 100% of the new tax revenue from their investment. • Now: • To qualify for the credit, the taxpayer must invest at least $1,000,000,000. • The taxpayer can still claim 100% of new tax revenues for the first three years, but they may now also claim seven more years of 75% of new tax revenue. • Corporations still do not qualify for this credit, but corporations that receive the credit through a pass-through entity may claim the credit. • Must have a tax credit certificate from the GOED. SB23 (2012), 59-7-614.6, 59-10-1025, 59-10-1109, 63M-1-2902, 63M-1-2903, 63M-1-2905, 63M-1-2908, 63M-1-2909

15. Recycling Market Development Zone Tax Credit • Extends the repeal date of the recycling market development tax credit from January 1, 2012 to January 1, 2021. • 2011 SB 30: Retroactively reinstated the recycling market development zone tax credit from July 1, 2010 to December 31, 2011 SB 30 (2011), HB 35 (2012), 63I-1-263

16. Credit for Increasing Research Activities • Income and corporate tax Credit for Increasing Research Activities in Utah decreased from 9.2% to 7.5% for tax years beginning on or after January 1, 2012, for qualified research expenses. • Instructions updated for 2012. HB 365 (2012), 59-7-612, 59-10-1012

17. Veteran Employment Tax Credit • A new nonrefundable credit is allowed for hiring a recently deployed veteran on or after January 1, 2012, if the veteran: • Has received an honorable or general discharge within the last two-year period before the employment begins. • Was collecting or was eligible to collect unemployment benefits, or has exhausted their unemployment benefits within the last two years. • Work for the taxpayer for at least 35 hours per week for not less than 45 of the next 52 weeks following the veteran’s employment start date. • May receive the credit for 2 years: • $200 per month (up to $2,400) of employment for the taxable year per veteran for the first year. • $400 per month (up to $4,800) of employment for the taxable year per veteran for the second year. • 5-year carryforward HB 312 (2012), 59-10-1031

18. Currency Amendments • Specie legal tender is legal tender in Utah. • “Specie legal tender” is defined as gold or silver coin issued by the United States or other gold or silver coin if authorized by a court of competent jurisdiction or congress. • A person may not compel another person to tender or accept specie legal tender except as expressly provided by contract. • HB 317 (2011) added a new apportionable nonrefundable income tax credit for tax years beginning January 1, 2012. HB 157 (2012) clarifies that this credit may be claimed for a net capital gain on a transaction involving legal tender to the extent that it is included in taxable income. HB 317 (2011) HB 157 (2012), 59-1-1501.1, 59-1-1502, 59-1-1503, 59-10-1028

19. Health Benefit Plan Credit • 5% of amount paid for health benefit plan • Can’t have the option of insurance under a current or former employer • Can’t use pre-tax deductions through employer-sponsored programs (i.e. FLEX, cafeteria plans, etc.) • Maximum credit is: • $300 for single taxpayer • $600 for married filing jointly wit no dependents • $900 for any filing status with dependents • No carryback or carryforward For more information go to incometax.utah.gov/credits/health-benefit-plans-credit.

20. Health Benefit Plan Credit Example 1 – Retired Federal Employee John is a federal employee who retired at age of 60. The Office of Personnel Management (OPM) continues to fund/subsidize a portion of the retiree’s health insurance. His health worsened and he had to purchase an additional health insurance policy at a cost of $300 a month to help offset his deductibles and medications. • John cannot claim his portion of the OPM (former employer) health insurance premiums or the additional health policy or premiums.

21. Health Benefit Plan Credit Example 2 – Retired Federal Employee James retired from the State of Utah at the age of 62 due to his poor health. His spouse is age 63 and still works. The retiree had enough sick-leave to continue the state medical benefits for himself and his spouse until they are eligible for Medicare coverage. The spouse’s employer does not offer health care benefits. They pay an additional $250 a month for supplemental health care insurance policy to cover deductibles and copayments not covered by the state’s plan. • They cannot use the premiums they paid for the supplemental coverage.

22. Health Benefit Plan Credit Example 3 – Retired Individual Participates in Former Employer’s Insurance Program Karen retired at age 62. The former employer provides a limited health program for retirees and she got a separate supplemental health insurance policy. • Karen cannot claim either the supplemental insurance or the former employer limited insurance premium paid.

23. Health Benefit Plan Credit Example 4 – Retired Taxpayer and Family Covered under Former Employer’s Plan Janice is retired and eligible to participate in a health benefit plan funded and maintained by the employer from which she retired. The plan provides coverage for her family, but only if she pays an additional premium. • Janice may not use the premiums she paid for the employer’s health plan to compute the Utah credit.

24. Health Benefit Plan Credit Example 5 – Taxpayer age 65, is Retired and Spouse Still Works Mel is 65, is on Medicare and pays the premiums for Medicare B, a Medicare B supplemental insurance plan, and a Medicare D prescriptions drug plan. His spouse, Terri, is 55 and is still working. Terri’s employer offers a plan that will cover her and Mel. The employer pays 80% and Terri pays the other 20% of the premium cost. They choose to only cover Terri under the company’s plan. • Since Mel and Terri are both eligible under the employer plan, they cannot use any of the premiums paid for the company plan, Medicare B or D, or any supplemental plan to compute their Utah credit.

25. Health Benefit Plan Credit Example 6 – Taxpayer and Spouse are 65 and covered by Medicare Larry and his spouse, Jeannette, are both 65 and covered by Medicare A and B. The Medicare B premiums are deducted from their social security benefits. They also pay premiums for a Medicare B supplemental insurance policy and a separate Medicare D prescription drug plan. • They can use the full amount of premiums paid for their Medicare A, B and D plans. However, they cannot use the Medicare B supplemental premiums to compute their Utah credit. Note: If they claim any portion of the premiums as an itemized deduction on their federal return, their qualifying health insurance premiums for this credit must be reduced by the deduction claimed.

26. Health Benefit Plan Credit Example 7 – Taxpayer & Spouse are 65 and Participate in Prior Employer Health Plan & Have Cancer Plan Robert and his spouse, Anne, are both 65 and are covered by a plan offered by their former employer and Medicare. Their Medicare plan becomes a secondary payer. In addition they purchases a cancer plan. • They cannot use any of the premiums they paid for their former employer’s plan or their Medicare Part A and B premiums. They also cannot claim the premiums paid for the cancer policy.

27. Health Benefit Plan Credit Example 8 – Taxpayer & Spouse are 65 & Participate in the Medicare Part D Drug Plan Al and his spouse, Cathy, are both 65 and participate in a Medicare Part D drug plan. They have three options for paying the premiums: • They can give permission to the company offering the plan to automatically deduct their premiums from their bank account. • They can have the premiums deducted every month from their Social Security benefits, similar to their premiums for Medicare Part B. • They can pay their premiums by mailing a check or money order each month. • Regardless of the method they choose to pay the premiums, they can use the full amount of the premiums paid for their Medicare drug plans to compute their Utah credit. Note: If they claim any portion of the premiums as an itemized deduction on their federal return, their qualifying health insurance premiums for this credit must be reduced by the deduction claimed.