Welcome to the Winter 2013 edition of the Golan & Christie newsletter. In this issue, we address tax, insurance, and privacy issues that are critical for your business to understand:

AMERICAN TAXPAYER RELIEF ACT OF 2012

During the last few months of 2012, one could not avoid the drama unfolding in Congress concerning the “fiscal cliff.” Set forth in this article is a summary of some of the important changes made by the Act. 

WORKERS’ COMPENSATION INSURANCE

Some companies do not understand the importance of having workers’ compensation insurance. Under the Illinois Workers’ Compensation Act, all employers are required to obtain workers’ compensation insurance.

EMPLOYEE PRIVACY

In its recent opinion for Lawlor v. North American Corp. of Illinois, the Illinois Supreme Court sent a warning message to employers who try to dig up evidence about former employees – you may be liable for punitive damages for invading the employee’s privacy. .

At Golan & Christie, we are here for you — through sleet and snow and more freezing rain that I can remember this time of year. Any time, anywhere you need us. It’s our privilege to serve you.

-Stephen L. Golan
 Managing Partner

During the last few months of 2012, one could not avoid the drama unfolding in Congress concerning the “fiscal cliff.” Just when falling off the fiscal cliff appeared to be a certainty, Congress passed the American Taxpayer Relief Act (the “Act”) of 2012 on January 1, 2013. Set forth below is a summary of some of the important changes made by the Act.

Tax Rates

Had Congress not acted, individual tax rates were slated to increase to 15, 28, 31, 36 and 39.6 percent. The Act preserves and makes permanent the lower Bush-era rate structure, except for single individuals with taxable income over $400,000, married couples (filing a joint return) with taxable income over $450,000, and heads of household with taxable income over $425,000. Income above these amounts will be taxed at the top 39.6 rate. However, taxpayers who find themselves in the 39.6 marginal bracket will still benefit from the lower marginal rates for all income below these levels. The threshold amounts for the highest marginal rate will be indexed for inflation after 2013.

Long Term Capital Gains Rates

Absent the Act, the maximum tax rate for capital gains and qualified dividends was scheduled to jump to 20 percent from 15 percent. The Act reinstates the Bush-era capital gains rates for all individuals except higher-income taxpayers. For individuals with taxable income below the threshold, the 15 percent capital gains rate will continue to apply except to taxpayers in the 15 percent tax bracket, who will continue to enjoy the zero percent capital gains tax rate. It should be noted that installment payments received after 2012 are subject to the tax rates for the year the payment is received, and not the year of the sale. Thus the 20 percent rate will apply to installment payments received in 2013 and later years by higher-income taxpayers.

Alternative Minimum Tax

The Alternative Minimum Tax (“AMT”), enacted by the Tax Reform Act of 1969, is essentially a parallel tax system designed to prevent ultra-high income taxpayers from reducing their tax liabilities to zero. However, since the AMT exemption was not indexed for inflation, the taxpayers who ultimately have been most affected by the AMT are middle income earners with large itemized deductions for taxes and home equity loan interest. The Act permanently increases the AMT exemption amounts to $50,600 for single taxpayers and $78,750 for married taxpayers filing jointly. The Act also provides for an annual inflation adjustment to the exemption amounts for years after 2013.

Itemized Deductions/Personal Exemption Phase Out

Not all provisions of the Act were beneficial to taxpayers. The Act revives the limitation on itemized deductions and personal exemption phase out after 2012 for higher-income individuals. The new thresholds for both the itemized deduction limitation and the personal exemption phase out are $300,000 for married couples and $250,000 for single taxpayers. These thresholds will be indexed for inflation after 2013.

Estate, Gift, and Generation-skipping Transfer Taxes

The estate tax provision of the Act, which had appeared to be a deal breaker, provides for a permanent maximum estate tax rate of 45 percent, and a $5 million estate, gift and generation-skipping transfer tax exclusion for tax years after 2012. The exclusion will be indexed for inflation for years after 2013. The Act also makes permanent “portability” of the exemption between spouses.

There are several existing tax provisions that were not affected by the Act, but are mentioned here due to their significant impact on taxpayers in 2013 and subsequent years.

End of Payroll Tax Holiday

During 2011 and 2012, an individual’s share of FICA tax was reduced by 2%, resulting in more take home pay for every wage earner and self-employed individual. This reduction was slated to expire at the end of 2012 and was not reinstated. What this means is that an individual earning $75,000 will take home $1,500 less in 2013 than in 2012, and an individual who reaches the FICA “limit” (increased from $110,100 to $113,700) will take home $2,274 less.

Tax on Investment Income

Starting in 2013, under the Patient Protection and Affordable Care Act of 2010, higher income taxpayers are subject to a 3.8 percent additional tax on “net investment income.” Net investment income includes income from interest, dividends, annuities, royalties, rents, and dispositions of property unless the income is attributable to a trade or business. The thresholds for this tax are $200,000 for single taxpayers and $250,000 for married persons filing joint returns. Taxpayers whose income exceeds these amounts must pay the additional 3.8 percent tax on capital gains, whether short-term or long-term. Thus the effective top rate for net capital gains for the “higher-income” taxpayers will be 23.8 percent for long-term gain and 43.4 percent for short-term capital gains.

The American Taxpayer Relief Act was intended to bring some certainty to the tax code, a volume consisting of more than four million words. It must be noted that, although Congress has made a number of the tax law changes “permanent,” nothing, of course, precludes them from reconsidering the entire tax rate structure in the future as part of a comprehensive tax reform.

Prior to joining Golan & Christie LLP last September, I spent the past three years working for a well-known workers’ compensation defense firm. I am excited to share my knowledge relating to workers’ compensation with Golan & Christie’s clients.

For starters, some companies do not understand the importance of having workers’ compensation insurance. Under the Illinois Workers’ Compensation Act, all employers are required to obtain workers’ compensation insurance. Even if your company only has one employee, workers’ compensation insurance is required. If an employer knowingly fails to obtain insurance, that employer is subject to a $500 fine for every day of noncompliance with a minimum fee of $10,000.

Additionally, many companies do not know that the Illinois Workers’ Compensation Commission — the enforcement body — can issue a work-stop order on a company that has been found to have knowingly failed to provide insurance. In those cases, the company must stop all business operations until it can provide proof of insurance.

Failure to have workers’ compensation insurance can prove very costly to an employer.

If you have additional questions or need information on how to obtain workers’ compensation insurance, please contact Brianna Golan at (312) 696-2636.

In its recent opinion for Lawlor v. North American Corp. of Illinois, the Illinois Supreme Court sent a warning message to employers who try to dig up evidence about former employees – you may be liable for punitive damages for invading the employee’s privacy.

The litigation in Lawlor initially began as a claim for unpaid commissions by a former employee. The employer filed a counterclaim that alleged that the employee had improperly tried to divert clients to another company (her future employer) while she was still employed at the company. The employer hired a private investigator to obtain copies of the employee’s personal phone records, with hopes that the records would substantiate the employer’s allegations. The private investigator obtained the phone records by impersonating the employee to the phone company, and when the employee found out about the impersonation, she amended her complaint to add a claim for “intrusion upon seclusion” which is a type of invasion of privacy claim.

Ultimately, the employee lost her claim for commissions and the employer was unable to prove its counterclaim, but the Illinois Supreme Court upheld a Cook County jury’s finding that the private investigator was acting as the employer’s agent, resulting in an award to the employee of compensatory and punitive damages because of the invasion of privacy. In the end, the employee ended up with $130,000 and the employer got nothing.

Those who examine employment laws throughout the various states often remark that California is in a class by itself as a state with some of the most employee-centric rules in the country. Adding to that reputation are a couple of new laws that just went into effect in 2013. An employer need not have physical operations in California in order to be subject to its employment laws – any individual who is working for you in California, even if that is out of his home, can seek the protections of California laws.

One legal change that took effect in California at the beginning of 2013 impacts employers who pay certain employees using commissions. Under the new law, any contract of employment that includes commissions for services to be rendered in California must be in writing and must specifically set forth the method by which the commissions will be computed and paid. The employer must give the employee a signed copy of the contract and must obtain a signed receipt for the contract from the employee. Any change to the commission plan must also be presented to the employee in writing and signed off on before it becomes effective.

Another legal change is the minimum wage law for two cities in California. Effective Jan 1, 2013, San Francisco’s minimum wage increased from $10.24 to $10.55 per hour. Additionally, San Jose approved a $10.00 per hour minimum wage, which will take effect 90 days after the November election results are certified, likely in February or March of 2013.

Several other states also increased their state-wide minimum wage as of January 1, 2013, including Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Rhode Island, Vermont and Washington. If you have employees in any of those states, you need to confirm that your hourly wages have been updated. Although the federal minimum wage remains $7.25, where it differs from a state or local minimum wage, the higher wage must be paid.

Golan & Christie welcomes new partner David M. Saltiel.

David M. Saltiel joins Golan & Christie LLP from K & L Gates LLP (and its predecessor, Bell, Boyd & Lloyd) with over 30 years of experience in real estate, entertainment and corporate law. He received his J.D. from the University of Illinois and his B.B.A. with honors from the Stephen M. Ross School of Business at The University of Michigan.

In real estate, he focuses on real estate management, fair housing, retail and commercial leasing, landlord and tenant matters and development and has been named among the top commercial real estate lawyers in Illinois by the Leading Lawyers Network. He has also been named by Chambers USA America’s Leading Business Lawyers for the past nine years as one of the top Media & Entertainment lawyers in the United States for his representation of producers, writers and studios in theatre, film and television. He represents many mid-sized business in their general corporate matters including sales, mergers and acquisitions. He is the President and a founding Board member of Chicago Children’s Theatre and is in his fourth term as an elected Trustee on the Board for the Village of Lincolnshire.

Left to right: Robert R. Benjamin, Beverly A. Berneman, Barbara L. Yong, Caren A. Lederer and Anthony J. D’Agostino.

In a twelve-month span, Golan & Christie’s Bankruptcy and Reorganization Practice Group obtained confirmation of nine (9) separate chapter 11 cases, from manufacturing companies to real estate developers to retail operations to individuals.

It is the most cases Golan & Christie has confirmed in the history of the practice.

Golan & Christie’s Bankruptcy and Reorganization Practice Group is among the most successful reorganization groups in the Northern District of Illinois for small- to medium-sized businesses and individual debtors.

The practice group, composed of Robert R. Benjamin, Beverly A. Berneman, Barbara L. Yong, Caren A. Lederer, and Anthony J. D’Agostino, brings decades of experience to the job.

“The business clients we have helped were able to weather the financial downturn and save jobs,” said Beverly Berneman. “And we were able to preserve individual debtors’ financial footing in spite of the decrease in their personal assets.”

For a consultation with the Bankruptcy and Reorganization Practice group, contact Beverly Berneman at (312) 696-1221.