House Acts Swiftly to Impose Added Tax on Bonuses Received from TARP Beneficiaries

Riding on the crest of public furor over the grant of bonuses to AIG employees, the House of Representatives acted swiftly by a vote of 328-93 to approve a legislation that imposes an additional income tax on bonuses paid to employees or former employees of covered Troubled Assets Relief Program (“TARP”) recipients.

Specifically, the bill would impose a 90 percent tax on bonuses given to employees with family incomes above $250,000 at companies that have received at least $5 billion in government financial aid under the TARP.

Voting to pass the bill were 243 Democrats and 85 Republicans. It was objected to by six Democrats and 87 Republicans. A counterpart bill is under study at the Senate and would impose a 35 percent excise tax on the companies paying the bonuses and a 35 percent excise tax on the employees receiving them.

The bill defines “covered TARP recipient” to include: (1) entities and their affiliates that received capital infusions under the Emergency Economic Stabilization Act of 2008 exceeding $5 billion; and (2) the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). The legislation however exempts entities that repay TARP amounts exceeding a $5 billion threshold.

The bill sets the rate of such tax at 90% of the lesser of: (1) the bonus amounts paid; or (2) the amount of such taxpayer’s adjusted gross income exceeding $250,000 ($125,000 in the case of a married individual filing a separate return). It exempts any employee who irrevocably waives or returns a bonus payment before the close of the taxable year in which such payment is due.

Also See:

IRS Reminds Tax Preparers Need to File Due Diligence Checklist with All Earned Income Tax Credit Claims

IRS Provides Penalty Relief to Farmers Affected by MF Global Bankruptcy

IRS Issues Guidelines to Parents and Students on College Tax Benefits

Treasury, IRS Issue Proposed Regulations for FATCA Implementation

IRS Issues Guidance to Encourage Small Employers to Check Out Small Business Health Care Tax Credit