In Silicon Valley, Much-Feared Tax Bill Pays Dividends for Workers

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Google logo on office building in Irvine, California
The Google logo is pictured atop an office building in Irvine, California, U.S. August 7, 2017. REUTERS/Mike Blake/
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By Paresh Dave, Heather Somerville and Jeffrey Dastin
SAN FRANCISCO (Reuters)

The U.S. tax overhaul is a boon to Silicon Valley technology companies like Apple Inc <AAPL.O> and Alphabet Inc <GOOGL.O>, which will enjoy big tax cuts and the chance to bring back billions of dollars from overseas at a reduced rate

And contrary to the dire warnings of California officials, a large swath of Bay Area workers and their families stand to get a tax break as well, even with new limits on state and local tax deductions.

California has the highest state income tax in the nation, and Governor Jerry Brown has called the new tax bill “evil in the extreme.”

Nonetheless, many in Silicon Valley stand to benefit. Startup employees, freelancers and venture capital investors are among those who will get new tax benefits or keep those they already have, tax experts said.

 

An Apple logo is seen in a store in Los Angeles
An Apple logo is seen in a store in Los Angeles, California, U.S., March 24, 2017. REUTERS/Lucy Nicholson

 

Even some of the middle- and upper-income professionals who form the core of the technology industry workforce will still get significant tax cuts, while most others will see little change, they said.

The new $10,000 cap on state and local tax deductions will have a less dramatic effect than feared because such deductions in many cases had already been rendered moot by the alternative minimum tax (AMT), a mechanism for assuring that the well-heeled pay at least 26 percent of their income in taxes.

“There is a lot of noise about workers in California, New Jersey, New York and Illinois (facing higher taxes), but 80 percent of our clients there were already paying the alternative minimum tax so they don’t benefit from the state and local deductions,” said Jack Meccia, a tax associate at financial planning firm Vestboard, which works with several hundred individuals in tech.

 

The new law alters the AMT in a way that vastly reduces the number of people who have to pay it, from more than 5 million to an estimated 200,000 next year, according to the Tax Policy Center

The AMT dynamics, combined with reduced overall tax rates and the doubling of the standard deduction to $24,000 for couples should hold most Bay Area tax bills steady, said Bob McGrath, tax director at accounting firm Burr Pilger Mayer.

 

 

Estimates by three experts, using roughly similar assumptions, show that a home-owning couple earning a combined $250,000 in Silicon Valley would likely see an increase or decrease in their tax bill of a few hundred dollars.

A married couple with no children who rent a home and make a combined $150,000 would see a $3,900 tax cut, estimated Annette Nellen, who directs the master’s degree in taxation program at San Jose State University.

Low-income workers will see tax cuts too, though the dollar amounts are small.

Bob Emmett, a single, 73-year-old security officer who lives in San Jose, criticized the bill as “designed to help the rich.”

 

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