Is Our Unemployment System Broken?

My partners and I frequently get calls from clients who are trying to hire, but find that many qualified candidates are collecting unemployment benefits and do not want something like a job getting in the way of these benefits.  The conversation goes something like this "We really like this person and want to hire them.  Tell me how I can pay them so they can continue to collect."  Of course we tell the client that can't be done, and that participation in any kind of scheme like this would be  fraud, with most serious consequences.  Although many unemployed people are desperately searching for employment, and willing to take almost any job,  there are many who are thrilled to stay home and collect benefits.

I know that this is not original thinking, but it seems that this situation is representative of the problem with our unemployment system, that is, it gives able and employable people incentive to not work.

Rather than paying the unemployed not to work, why not give the money to private industry through a tax credit, with the requirement that it be used to hire the unemployed?  Perhaps the credit could be a dollar for dollar match where half of the wages came from the government and the other half from the employer.  This would effectively double the amount of money available for the formerly unemployed, because the employer would effectively be paying half of the employee's wage.  Taking it one step further, the wages paid to this class of employee could be exempt from payroll taxes for a limited period of time, say one year.  After all, no payroll tax is being paid on the money that the unemployed are paid to stay home.  In New Jersey, weekly unemployment benefits range from $300 to $600.  This money could be put to much better use paying people to work rather than to stay home.  It could be the economic stimulus that our economy needs.  Because more people would be working, productivity would increase, and the employers would be profitable, because half the wages are paid by tax credit, and are exempt from payroll tax.  The result of these additional profits would be increased tax collections, which would contribute to deficit reduction.

I suspect that my idea will be dismissed by many, who can identify a multitude of reasons why it cannot work.  Perhaps many critics will be those on the receiving end of unemployment benefits, I don't know.  And maybe my numbers don't work, but I don't think anyone will dispute the fact that if someone is paid not to work, then that is exactly what they will do.

Do you agree?  Please let me know.  Your comments, both positive and negative, are welcome.

NY Tax on Nonresidents - Part II

Several weeks ago I blogged about state taxes, and how New York State collects a lot of tax by auditing non-residents who maintain living quarters in that state and also enter New York more than 183 days in a year.  

Today's Wall Street Journal has an article (Out-of State Owners Could Face Tax Bill, page A15)  that leads the reader to believe that the 183 day rule no longer applies, and that mere ownership of property such as a vacation home is sufficient to trigger New York residence and the obligation to pay New York tax on all of your income.  That is not the case.  New York law clearly states in order to be a New York resident for tax purposes, New York must be your domicile, or you must maintain New York living quarters and enter the state more than 183 days.

The issue in the Barker case discussed in the WSJ is the exception to the 183 day rule, that is, if the living quarters are not a "permanent place of abode" then you will not be a resident even if you pass the 183 day threshold.    The New York regulations provide that a permanent place of abode means "a dwelling place permanently maintained by the taxpayer...  However, a mere camp or cottage, which is suitable and used only for vacations, is not a permanent place of abode."  In this case, the taxpayer entered NY more than 183 days and unsuccesfully argued that his three story home in the Hamptons did not consitute a permanent place of abode.

I'm sure that the WSJ article caused a lot of unecessary panic.  If you want a copy of the case, email me or comment on this blog, including your email address.

IRS Offers Second Chance to Report Foreign Financial Accounts

The IRS announced yesterday that it has opened a second voluntary disclosure program for taxpayers who have undisclosed foreign financial accounts.  In exchange for disclosure of unreported offshore accounts, the IRS offers reduced penalties.  This progam is scheduled to run through August 31, 2011.

In a similar 2009 program, approximately 15,000 taxpayers came forward, resulting in collections of approximately $400 million.  Our office assisted several taxpayers with voluntary disclosure, and we found that they wound up paying approximately 50% of the highest account balance in the account during the preceding six years.  Although certainly painful, the penalties were substantially lower then they would have been absent the disclosure, and the taxpayers avoided  prosecution.

Under the new framework, taxpayers are required to pay tax on the unreported income for the years 2003 through 2010, a penalty of 25% of the highest aggregate account balance during that period, and interest.  In order to participate in the program, taxpayers must file amended returns for all years and include payment for taxes, interest and penalties.  The IRS has posted a penalty computation worksheet on its website.  The program ends August 31, 2011.  All paperwork must be received by the IRS by that date.

If you have an undisclosed foreign financial account, we urge you to participate in this program.  It is rare that the IRS gives taxpayers a second bite at the apple.  This may be your last chance to come forward.  If you don't take advantage of this program, and your undisclosed accounts are discovered by the IRS, the consequences will be devastating.  The tax, penalties, and interest will wipe out the entire account balance, and, it is possible that you will also go to jail.