The maximum amount of net earnings subject to the social security part of the self-employment tax for tax years beginning in 2006 has increased to $94,200. All net earnings of at least $400 are subject to the Medicare part of the tax.

The maximum amount of wages subject to the social security tax for 2006 is $94,200. There is no limit on the amount of wages subject to the Medicare tax.

The following changes to the domestic production activities deduction went into effect in 2006. For more information, see Form 8903, Domestic Production Activities Deduction, and its instructions.

For property placed in service in 2006 through 2008, you can deduct the cost of energy efficient building property. The maximum deduction for any building for all tax years is $1.80 multiplied by the square footage of the building. Energy efficient building property includes property installed as part of:

The property must be certified as being part of a plan to reduce annual energy and power costs for those systems by a least 50% in comparison to a reference building that meets certain requirements. For more information, see Notice 2006-52, 2006-26 I.R.B. 1175.

These credits were extended to cover employees who begin work for the employer before January 1, 2008.

If you are a fiscal year taxpayer with a tax beginning in 2005 and ending in 2006, you can elect on Form 6765 the alternative incremental credit (as modified) or the new alternative simplified credit. If you elect both the alternative incremental credit and the alternative simplified credit, the election of the alternative incremental credit will be considered revoked for the following tax year. For more information, see Form 6765, Credit for Increasing Research Activities.

Additional time is provided for buildings in designated counties or parishes of the Gulf Opportunity (GO) Zone, Rita GO Zone, and Wilma GO Zone to meet certain tests in order to be a qualified rehabilitated building for the rehabilitation credit. For these buildings, the “24-month period” and the “60-month period” are extended by 12 months; the rehabilitation must have begun, but not completed, and the building placed in service prior to the date on which the President declared a disaster in the area in which the building is located. Also for these buildings, the taxpayer has 36 months to repair any damage and place the building back in service; the period begins on the date on which the President declared a disaster in the area in which the building is located.

For more information, see Form 3468, Investment Credit, and Notice 2006-38, 2006-16 I.R.B. 777.

In general, you can deduct only 50% of your business-related meal expenses. However, for 2006, you can deduct 75% of meal expenses while traveling away from your tax home for business purposes if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. Business meal expenses are covered in chapter 1 of Publication 463. Reimbursements for employee meal expenses are covered in chapter 11 of Publication 535.

Internal Revenue Code section 402A, added by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), authorizes employers to offer, beginning in 2006, a qualified Roth contribution program as part of a section 401(k) plan or a section 403(b) plan. EGTRRA also amended section 6051(a)(8) of the Code to require separate reporting of designated Roth contributions.

Two new codes (Code AA—Designated Roth contributions under a section 401(k) plan and Code BB—Designated Roth contributions under a section 403(b) plan) are to be used in box 12 on the 2006 Form W-2 to report the amount of any designated Roth contributions.

Employees may make designated Roth contributions in place of pre-tax elective deferrals. The designated Roth contributions are subject to income tax withholding, social security and Medicare taxes, and, if applicable, railroad retirement taxes. On Form W-2, employers must include designated Roth contributions in boxes 1, 3, and 5, and must report the contributions using Code AA or Code BB in box 12. For information, see the 2006 Instructions for Forms W-2 and W-3.

Shareholders in an S corporation must reduce their stock basis using their share of the adjusted basis, instead of the fair market value, of property the S corporation donates to certain charitable organizations in tax years beginning after 2005 and before 2008. For more information, see the Shareholder's Instructions for Schedule K-1 (Form 1120S).

If you are the policyholder of an employer-owned life insurance contract, you must include in income any life insurance proceeds received that are more than the premiums and any other amounts you paid on the policy. Generally, this applies to contracts issued after August 17, 2006. You are subject to this rule if you have a trade or business, you own a life insurance contract on the life of your employee, and you (or a related person) are a beneficiary under the contract. For exceptions to this rule, see Publication 525, Taxable and Nontaxable Income.

For tax years ending in 2006 and later, the credit is part of the general business credit. In certain circumstances, the credit has been extended to facilities that produce coke or coke gas fuel from non-petroleum-based products. In order to qualify for the credit, the fuel must be produced and sold after December 31, 2005. Qualified sales of coke and coke gas are not subject to a phaseout adjustment. For more information, see Form 8907, Nonconventional Source Fuel Credit.

New credits are available if you are a holder of a clean renewable energy bond or Gulf tax credit bond. If you hold a clean renewable energy bond or Gulf tax credit bond on one or more credit allowance dates of the bond, you are allowed a credit in the amount of 25% of the annual credit on each credit allowance date. For more information on these credits, see Form 8912, Credit for Clean Renewable Energy and Gulf Tax Credit Bonds.

An eligible contractor may claim a credit of up to $2,000 for each energy efficient home constructed and substantially completed by the contractor after August 8, 2005. The home must also be acquired after 2005 and before 2009 from the contractor by a person for use as a residence in the United States. The credit is allowed in the tax year the home was acquired from the contractor. Construction includes substantial reconstruction and rehabilitation. For a manufactured home, the manufactured home producer is treated as an eligible contractor. The home must be certified as having a level of annual heating and cooling at least 50% below the annual level of a comparable dwelling unit with the building envelope components accounting for at least a 10% reduction. For certain manufactured homes, the 50% requirement is reduced to 30%, or it does not apply if the home meets the requirements of the Energy Star Labeled Homes program. For more information, see Form 8908, Energy Efficient Home Credit.

For periods in 2006 through 2008, the investment credit for energy property has been expanded to include the business installation of qualified fuel cells, stationary microturbine power plants, and equipment that uses solar energy for illumination. In addition, the credit percentage has increased to 30% for solar energy property placed in service in 2006 through 2008. For more information, see Form 3468.

The credit has been expanded to include Indian coal sold after 2005 over a 7-year credit period. See Form 8835 for more information.

You can generally exclude a limited amount of the value of qualified parking you provide to an employee from the employee's wages subject to employment taxes. For 2006, the monthly exclusion for qualified parking has increased to $205. See Qualified Transportation Benefits in section 2 of Publication 15-B.

For wages paid after December 31, 2005, employers must use a new procedure to figure federal income tax withholding on wages of nonresident aliens. For more information, see Publication 15 (Circular E).

To reduce burden on small employers, the IRS has simplified the rules for filing employment tax returns to report social security, Medicare, and withheld federal income taxes. Starting with calendar year 2006, certain employers must file new Form 944, Employer's ANNUAL Federal Tax Return, instead of the Form 941, Employer's QUARTERLY Federal Tax Return. The IRS sent a notice to each employer that must file Form 944. Generally, the first annual Form 944, for calendar year 2006, was due January 31, 2007.

Two Spanish versions of Form 944 are available, Forma 944-PR, Planilla para la Declaración Federal ANUAL del Patrono, for employers in Puerto Rico, and Forma 944(SP), Declaración Federal ANUAL de Impuestos del Patrono o Empleador, for employers in the United States. Employers in American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands use Form 944-SS, Employer's ANNUAL Federal Tax Return.

For more information about annual employment tax filing and tax deposit rules, see Publication 15 (Circular E).

You can elect to deduct certain costs you pay or incur before January 1, 2008, to abate or control hazardous substances at a qualified contamination site. For costs paid or incurred after December 31, 2005 (after August 28, 2005, if for a Gulf Opportunity (GO) Zone site), petroleum products are treated as hazardous substances. For more information, see Publication 535, Business Expenses.

For tax years beginning after 2005, you can elect to amortize certain capital expenditures paid or incurred in creating or acquiring musical compositions (and copyrights of such compositions) instead of using the income forecast method. The property must be amortized ratably over a 5-year period beginning with the month the property is placed in service. The election does not apply to amortizable section 197 intangibles, qualified creative expenses, or to property for which a simplified procedure under section 263A(i)(2) applies. For more details, see Internal Revenue Code section 167(g)(8).

For tax years beginning in 2006 and 2007, qualified producers and manufacturers of certain energy efficient appliances may be able to claim a tax credit for dishwashers, clothes washers, and refrigerators that meet certain energy efficient standards and are produced or manufactured during the calendar year ending with or within the tax year. This credit is NOT available to end-users or purchasers of the appliances. For more information, see Form 8909, Energy Efficient Appliance Credit.

For tax years beginning after 2005 and before 2009, taxpayers who employ individuals as miners in U.S. underground mines can claim a credit of 20% of the training program costs paid or incurred during the tax year for training of qualified mine rescue team employees. The maximum amount of training program costs that may be taken into account annually for each qualified employee is $50,000. The training costs include wages paid or incurred while the qualified employee is attending a training program. For more details, see Form 8923, Mine Rescue Team Training Credit.

An appraiser who prepares an incorrect appraisal that results in a substantial or gross valuation misstatement may have to pay a new penalty under section 6695A of the Internal Revenue Code. For details, see Publication 561, Determining the Value of Donated Property.

The following tax benefits that had expired have been extended as shown below.

In addition to certain provisions discussed earlier, the following tax benefits have expired as shown below.

The maximum amount of net earnings subject to the social security part of the self-employment tax for tax years beginning in 2007 has increased to $97,500. All net earnings of at least $400 are subject to the Medicare part of the tax.

The maximum amount of wages subject to the social security tax for 2007 is $97,500. There is no limit on the amount of wages subject to the Medicare tax.

For tax years beginning after December 31, 2006, the domestic production activities deduction percentage increases to 6%. For more information on this deduction, see Form 8903, Domestic Production Activities Deduction, and its instructions.

After December 31, 2006, the welfare-to-work credit was combined with the work opportunity credit. Use Form 5884, Work Opportunity Credit, to claim a credit for an employee who begins work for the employer after December 31, 2006.

You can generally exclude a limited amount of the value of qualified parking and commuter highway vehicle transportation and transit passes you provide to an employee from the employee's wages subject to employment taxes. For 2007, the monthly exclusion for qualified parking increases to $215 and the monthly exclusion for commuter highway vehicle transportation and transit passes increases to $110. See Qualified Transportation Benefits in section 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits.

A 25% exclusion from gross income is allowed for long-term capital gain from certain conservation sales of qualifying mineral and geothermal interests located on eligible federal land. The sale must be to an eligible entity and occur after December 19, 2006. An excise tax may be imposed if an eligible entity fails to take steps consistent with the protection of conservation purposes.

For details, including the geographical location of eligible federal land, see section 403 of Title IV, Division C, of the Tax Relief and Health Care Act of 2006. Also see Form 8924, Excise Tax on Certain Transfers of Qualifying Geothermal or Mineral Interests, when it is released in 2007.