2012 Income Tax Slower and Smaller than Prior Years

2012 Tax Refunds are coming in later and are much lower than in prior year for many individuals.

For many, IRS Income Tax refunds have been coming in much later this year compared to prior years. Also, the amounts have been so much lower in comparison leaving many families let-down. While the IRS isn't putting out numbers on how many refunds have been issued so far this tax season, refunds got off to a bit of a bumpy start this year. Blame it on a perfect storm of events: A late launch to the filing season, which started Jan. 30 – eight days later than usual – due to last-minute, "fiscal cliff" tax changes enacted by Congress; the inability of taxpayers to file for some credits until early March; and more diligent – but time-consuming – scrutiny of tax returns, part of the IRS' beefed-up efforts to thwart identity theft and tax refund fraud.

 Even Wal-Mart said it's felt the impact of later-than-usual refunds. By this time last year, the giant retailer had cashed about $3 billion worth of checks related to tax refunds. This year, that amount is just $1.7 billion, the company said Thursday.

 We at, Hot Springs Tax Services, have noticed that things are looking up. Many individuals are getting their returns back much faster. The only individuals that still are dealing with slower processing are the people using education credits such as hope and american opportunity credit. In 2012, the IRS said, nine out of 10 refunds were issued in less than 21 days. "The same results are expected in 2013," said IRS spokesman Richard Panick in an email. Refunds have especially been slower for many lower-income taxpayers who qualify for the Earned Income Tax Credit. For single head of household filers with two young children, that refundable credit could mean $7,039 in their pocket. It's the most significant financial event for them for the year. And now it's all up in the air. They don't know when they'll get their refund.

Where's my refund?

  In recent weeks, so many taxpayers were using the IRS online tool, "Where's My Refund," the IRS actually had to issue a plea: Don't check it more than once a day. 

 Once you've filed a federal tax return, the popular IRS.gov tool lets you track your refund's progress: when the return was received, when a refund was approved and sent out. But in mid-February, so many people were clicking "Where's My Refund?" the system jammed up. The online tool is only updated every 24 hours, the IRS noted, so repeated attempts to check online or from a smartphone won't yield any new information.

"A taxpayer's account isn't likely to change that often, so there's no need to check more than once a day," said Panick. And nights or weekends, when the IRS site's traffic slows down, are the best times to check your refund's status, he added. With an e-filed return, you can check within the first 24 hours after it's filed. With a paper return, check four weeks after you mailed it.

Avoid refund delays

  One of the best ways to avoid refund delays: submit an "error-free" tax return. And we're not necessarily talking about math mistakes. 

To avoid processing delays, the IRS reminds taxpayers to:
 • Verify the Social Security numbers for yourself, spouse and dependents.
 • Be sure your mailing address is correct. (Every year, thousands of refunds get returned as "undeliverable" by the U.S. Post Office because taxpayers either moved or provided an incorrect address.)
 • Double-check your bank routing numbers if requesting direct deposit.

Speeding up refunds

 The quickest way to collect your tax refund is by requesting "direct deposit" when filing. It goes straight into your checking or savings account. 

On other tax fronts

  The IRS said most taxpayers should have received their W2s and 1099s by mid-February. If you're still waiting, contact your employer or issuer; or call the IRS at (800) 829-1040 if you can't get a replacement.  

The IRS is predicting that the number of tax returns filed this year will go up about 1.6 percent. In 2012, the average tax refund was $2,803.


  HANDY IRS INFORMATION

 • For basic tax questions: call (800) 829-1040 or use the IRS website: www.irs.gov.
 • Free tax-filing help: Seniors and moderate-income taxpayers can use Volunteer Income Tax Assistance sites. Search for a VITA site by ZIP code: http://irs.treasury.gov/freetaxprep/, or call (800) 906-9887.
 • To check your refund: Use the IRS website's "Where's My Refund?" tool or download the "IRS2Go" mobile app. Or call (800) 829-1040. You'll need your Social Security number, filing status and refund amount from the return.
• Fastest way to a refund: Use direct deposit when filing and submit an error-free return.
 • A reminder: Some IRS forms cannot be filed until early March, including mortgage interest, electric vehicles and residential energy tax credits.


  SMALL BUSINESS FINANCIAL HELP Hire a professional accountant to help with your small business needs. Contact us today.

2013 Income Tax Update

Overview

This may be the final year that the so-called Bush tax cuts remain in effect, unless Congress acts to further extend them. The Bush tax cuts, enacted in 2001 and 2003, were originally scheduled to expire for tax years beginning in 2011. However, President Obama signed legislation in late 2010 that temporarily extended the Bush tax cuts through 2012.

Many commentators agree that Congress is unlikely to extend the Bush tax cuts prior to the November elections, but uncertainty remains as to whether Congress will take action following the elections. Provided that Congress fails to extend the Bush tax cuts, many significant rate changes and other substantive changes will take effect in 2013. This article summarizes the major federal income tax changes that are scheduled take effect in 2013 if Congress allows the Bush tax cuts to expire, certain other changes scheduled to take effect independent of the Bush tax cuts, and planning strategies to reduce the impact of these changes. If you or your company would like to discuss any of these scheduled changes or planning strategies, please contact any member of the Tax and Employee Benefits Team.

Individual Income Tax Rates

If Congress allows the Bush tax cuts to expire, ordinary income tax rates will increase for most individual taxpayers beginning in 2013. As discussed below, qualified dividend income that is currently taxed at long-term capital gain rates will be taxed at these higher ordinary income rates. The following table sets forth the scheduled rate increases, using 2012 dollar amounts which will be adjusted for inflation in 2013.

Tax Brackets (2012 Dollar Amounts)				Marginal Rate
Unmarried Filers		Married Joint Filers
Over	But Not Over	Over	But Not Over	2012	2013
$0	$8,700	$0	$17,400	10%	15%
8,700	35,350	17,400	70,700*	15%	15%
35,350	85,650	70,700*	142,700	25%	28%
85,650	178,650	142,700	217,450	28%	31%
178,650	388,350	217,450	388,350	33%	36%
388,350	...	388,350	...	35%	39.6%

* In 2013, this dollar amount will decrease to 167% of the amount for unmarried taxpayers in the same bracket (which is $58,900 in 2012), rather than 200% of the amount for unmarried taxpayers under current law. This change will have the effect of putting more middle-income joint filers in the 28% bracket and increasing the "marriage penalty" for many taxpayers.

Long-Term Capital Gain Rates

The maximum rate on long-term capital gain is scheduled to increase from 15 to 20 percent in 2013. Individual taxpayers in the 10 and 15 percent ordinary income tax brackets currently pay no tax on long-term capital gain. These taxpayers are scheduled to be subject to a 10 percent long-term capital gain rate in 2013. An 18 percent maximum rate will apply to capital assets purchased after 2000 and held for more than five years. Additionally, the 3.8 percent Medicare contribution tax discussed below will increase the effective rate of tax on long-term capital gains for certain higher-income taxpayers to as high as 23.8 percent. The following table sets forth the scheduled rate increases.

Maximum Rates	2012	2013	2013 (including Medicare contribution tax)
Long-Term Capital Gain	15%	20%	23.8%
Qualified 5-Year Capital Gain	15%	18%	21.8%

Planning Strategies. If Congress fails to take action as the year-end approaches, investors who were otherwise considering selling appreciated stocks or securities in early 2013 should give additional consideration to selling in 2012 to take advantage of the lower rate, assuming they will have held the asset for longer than one year. Additionally, business owners who are considering selling their business in the near future should consult with their tax adviser to discuss whether electing out of the installment method for an installment sale in 2012 would be more advantageous from a tax planning perspective.

Dividend Income Rates

The Bush tax cuts created the concept of "qualified dividend income," which currently allows dividends received from domestic corporations and certain foreign corporations to be taxed at the taxpayer's long-term capital gain rate. Additionally, qualified dividend income earned by mutual funds and exchange-traded funds may be distributed to shareholders and treated as qualified dividend income by the shareholder. Prior to the Bush tax cuts, all dividend income was taxed as ordinary income. If Congress fails to extend these provisions, the qualified dividend income provisions will expire, and all dividends will once again be taxed as ordinary income. Most notably, taxpayers in the highest marginal income tax bracket who currently enjoy the 15 percent rate on qualified dividend income will be taxed at 39.6 percent for dividends received from the same issuer in 2013. Additionally, the 3.8 percent Medicare contribution tax discussed below will increase the effective rate of tax on dividend income for certain higher-income taxpayers to as high as 43.4 percent. The following table sets forth the scheduled rate increases.

Maximum Rates	2012	2013	2013 (including Medicare contribution tax)
Qualified Dividend Income	15%	39.6%	43.4%
Ordinary Dividend Income	35%	39.6%	43.4%

Planning Strategies. Because of the impending increase to tax rates applicable to dividends, owners of closely held corporations should consider declaring and paying a larger-than-normal dividend this year if the corporation has sufficient earnings and profits. Owners should carefully plan any such distributions, as distributions in excess of the corporation's earnings and profits will reduce the shareholder's stock basis and subject the shareholder to increased long-term capital gain taxable at potentially higher rates when the shareholder subsequently disposes of the stock. Owners of closely held corporations should consult their tax adviser to discuss dividend planning and other strategies such as leveraged recapitalizations to take advantage of the low rate currently applicable to qualified dividend income.

New Medicare Contribution Tax

A new 3.8 percent Medicare contribution tax on certain unearned income of individuals, trusts, and estates is scheduled to take effect in 2013. This provision, which was enacted as part of the Patient Protection and Affordable Care Act (PPACA), is scheduled to take effect regardless of whether Congress extends the Bush tax cuts. For individuals, the 3.8 percent tax will be imposed on the lesser of the individual's net investment income or the amount by which the individual's modified adjusted gross income (AGI) exceeds certain thresholds ($250,000 for married individuals filing jointly or $200,000 for unmarried individuals). For purposes of this tax, investment income includes interest, dividends, income from trades or businesses that are passive activities or that trade in financial instruments and commodities, and net gains from the disposition of property held in a trade or business that is a passive activity or that trades in financial instruments and commodities. Investment income excludes distributions from qualified retirement plans and excludes any items that are taken into account for self-employment tax purposes.

Planning Strategies. Until the Department of Treasury issues clarifying regulations, uncertainty remains regarding which types of investment income will be subject to this new tax. Taxpayers whose modified AGI exceeds the thresholds described above should consult their tax adviser to plan for the imposition of this tax. Specifically, business owners should discuss with their tax adviser whether it would be more advantageous to become "active" in their business rather than "passive" for purposes of this tax. Owners of certain business entities such as partnerships and LLCs should also consider whether a potential change to "active" status in the business could trigger self-employment tax liability. Investors in pass-through entities such as partnerships, LLCs, and S corporations should also review the tax distribution language in the relevant entity agreement to ensure that future tax distributions will account for this new tax.

Additionally, individuals will have a greater incentive to maximize their retirement plan contributions since distributions from qualified retirement plans are not included in investment income for purposes of the tax. While distributions from traditional IRAs and 401(k) plans are not included in investment income for purposes of the tax, they do increase an individual's modified AGI and may push the individual above the modified AGI threshold, thus subjecting the individual's other investment income to the tax. Individuals may also consider converting their traditional retirement plan into a Roth IRA or Roth 401(k) this year since Roth distributions are not included in investment income and do not increase the individual's modified AGI. Although the Roth conversion would be taxable at ordinary rates, individuals should consider converting this year to avoid the higher ordinary rates scheduled to take effect in 2013.

Reduction in Itemized Deductions

Under current law, itemized deductions are not subject to any overall limitation. If the Bush tax cuts expire, an overall limitation on itemized deductions for higher-income taxpayers will once again apply. Most itemized deductions, except deductions for medical and dental expenses, investment interest, and casualty and theft losses, will be reduced by the lesser of 3 percent of AGI above an inflation-adjusted threshold or 80 percent of the amount of itemized deductions otherwise allowable. The inflation-adjusted threshold is projected to be approximately $174,450 in 2013 for all taxpayers except those married filing separately.

Planning Strategies. Because the overall limitation on itemized deductions will automatically apply to higher-income taxpayers, planning strategies are limited and highly individualized. Accelerating certain itemized deductions in 2012 to avoid the limitation may trigger alternative minimum tax (AMT) liability in 2012. Taxpayers should consult with their tax adviser to discuss the impact of this limitation and whether it may be advantageous to accelerate certain deductions, if possible, to 2012.

Reduction in Election to Expense Certain Depreciable Business Assets

Taxpayers may currently elect to expense certain depreciable business assets (Section 179 assets) in the year the assets are placed into service rather than capitalize and depreciate the cost over time. Section 179 assets include machinery, equipment, other tangible personal property, and computer software. Computer software falls out of this definition in 2013. The maximum allowable expense cannot exceed a specified amount, which is reduced dollar-for-dollar by the amount of Section 179 assets placed into service exceeding an investment ceiling. Both the maximum allowable expense and the investment ceiling will decrease next year, as shown in the table below.

	2012	2013
Maximum allowable expense	$139,000	$25,000
Investment ceiling	560,000	200,000

Planning Strategies. The change in law will both significantly decrease the dollar amount of Section 179 assets that may be expensed and cause the phaseout to be triggered at a lower threshold. Accordingly, business owners should consider placing Section 179 assets into service in 2012 to take advantage of the immediate tax benefit. Additionally, purchases of qualifying computer software should accelerated to 2012 if possible, as such purchases will no longer qualify for expensing in 2013.

AMT Preference for Gain Excluded on Sale of Qualified Small Business Stock

Taxpayers may exclude from their income all or part of the gain from selling stock of certain qualified C corporations that the taxpayer held for more than five years. The percentage of gain that may be excluded depends upon when the taxpayer acquired the stock (a 100 percent exclusion applies only to qualified stock acquired between September 28, 2010 and December 31, 2011). Under current law, 7 percent of the excluded gain is a preference item for AMT purposes. In 2013, this tax preference is scheduled to increase to 42 percent of the excluded gain (or 28 percent of the excluded gain for stock acquired after 2000). Gain excluded on stock for which the 100 percent exclusion applies will not be a tax preference for AMT purposes.

Planning Strategies. The increase in the percentage of excluded gain that will be treated as a tax preference for AMT purposes effectively eliminates the tax benefit of selling qualified small business stock. Those who are structuring a new business venture should reconsider forming a C corporation to take advantage of this provision, and should consult with their tax adviser to consider other entity choices. Owners of qualifying businesses who are considering selling their stock in the near future should also give additional consideration to a 2012 sale to take advantage of the current 7 percent AMT preference rate before the AMT preference rate increases in 2013.

Built-in Gains Tax Applicable to Certain S Corporations

Businesses that have converted from a C corporation to an S corporation are potentially subject to a corporate-level 35 percent built-in gains tax (BIG tax) on the disposition of their assets to the extent that the aggregate fair market value of the corporation's assets exceeded the aggregate basis of such assets on the conversion date. In the case of fiscal years beginning in 2011, the BIG tax does not apply if the five-year anniversary of the conversion date has occurred prior the beginning of the fiscal year. However, in the case of fiscal years beginning in 2012 or thereafter, the BIG tax will not apply only if the ten-year anniversary of the conversion date has occurred prior to the beginning of the fiscal year.

Planning Strategies. Owners of S corporations that are still in their 2011 fiscal year and that are considering selling corporate assets (or stock if a Section 338(h)(10) election will be made) within the near future should consider selling in the current fiscal year, if possible, to the extent their conversion to S corporation status occurred more than five, but less than ten years prior to the beginning of the fiscal year. For example, a C corporation that converted to an S corporation at the beginning of its fiscal year commencing October 1, 2005 would not be subject to the BIG tax on any of its built-in gain if it sold assets at any time prior to September 30, 2012, but would be subject to the tax if it sold assets on or after October 1, 2012.

Other Changes Affecting Individuals

• Additional employee portion of payroll tax. The employee portion of the hospital insurance payroll tax will increase by 0.9 percent (from 1.45 percent to 2.35 percent) on wages over $250,000 for married taxpayers filing jointly and $200,000 for other taxpayers. The employer portion of this tax remains 1.45 percent for all wages. This provision, which was enacted as part of the PPACA, is scheduled to take effect in 2013 regardless of whether Congress extends the Bush tax cuts.


• Phaseout of personal exemptions. A higher-income taxpayer's personal exemptions (currently $3,800 per exemption) will be phased out when AGI exceeds an inflation-indexed threshold. The inflation-adjusted threshold is projected to be $261,650 for married taxpayers filing jointly and $174,450 for unmarried taxpayers.


• Medical and Dental Expense Deduction. As part of the PPACA, the threshold for claiming the itemized medical and dental expense deduction is scheduled to increase from 7.5 to 10 percent of AGI. The 7.5 percent threshold will continue to apply through 2016 for taxpayers (or spouses) who are 65 and older.


• Decrease in standard deduction for married taxpayers filing jointly. The standard deduction for married taxpayers filing jointly will decrease to 167% (rather than the current 200%) of the standard deduction for unmarried taxpayers (currently $5,950). In 2012 dollars, this would lower the standard deduction for joint filers from $11,900 to $9,900.


• Above-the-line student loan interest deduction. This deduction will apply only to interest paid during the first 60 months in which interest payments are required, whereas no such time limitation applies under current law. The deduction will phase out over lower modified AGI amounts, which are projected to be $75,000 for joint returns and $50,000 for all other returns.


• Income exclusion for employer-provided educational assistance. This exclusion, which allows employees to exclude from income up to $5,250 of employer-provided educational assistance, is scheduled to expire.


• Home sale exclusion. Heirs, estates, and qualified revocable trusts (trusts that were treated as owned by the decedent immediately prior to death) will no longer be able to take advantage of the $250,000 exclusion of gain from the sale of the decedent's principal residence.


• Credit for household and dependent care expenses. Maximum creditable expenses will decrease from $3,000 to $2,400 (for one qualifying individual) and from $6,000 to $4,800 (for two or more individuals). The maximum credit will decrease from 35 percent to 30 percent of creditable expenses. The AGI-based reduction in the credit will begin at $10,000 rather than $15,000.


• Child credit. The maximum credit will decrease from $1,000 to $500 per child and cannot be used to offset AMT liability.


• Earned Income Tax Credit. The phaseout ranges for claiming the credit, which vary depending on the number of qualifying children, are scheduled to decrease for joint returns. Further, the credit will be reduced by the taxpayer's AMT liability.

Other Withholding Rate Changes
The following employer withholding rate changes will take effect in 2013:

	2012	2013
Employee portion of FICA payroll taxes	4.2%	6.2%
Backup withholding rate on reportable payments	28%	31%
Minimum witholding rate under flat rate method...
...on supplemental wages up to $1 million	25%	28%
...on supplemental wages in excess of $1 million	35%	39.6%
Voluntary withholding rate on unemployment benefits	10%	15%

Foreign Account Tax Compliance Act

Regardless of whether Congress extends the Bush tax cuts, beginning in 2014, a new 30 percent withholding tax will be imposed on certain withholdable payments paid to foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs) unless they collect and disclose to the IRS information regarding their direct and indirect U.S. account holders. FFIs include foreign entities that accept deposits in the ordinary course of a banking or similar business, that hold financial assets for the account of others as a substantial part of their business, or that are engaged primarily in the business of investing or trading in securities, commodities, and partnership interests. Any foreign entity that is not an FFI is an NFFE.

Withholdable payments will include U.S.-source interest, dividends, fixed or determinable annual or periodical income, and U.S.-source gross proceeds from sales of property that produce interest and dividend income. While the withholding obligation on withholdable payments to FFIs and NFFEs does not begin until 2014, FFIs will need to enter into agreements with the IRS by June 30, 2013 to avoid being subject to the withholding tax. In general, under such agreements, FFIs must agree to provide the IRS with certain information including the name, address, taxpayer identification number and account balance of direct and indirect U.S. account holders, and must agree to comply with due diligence and other reporting procedures with respect to the identification of U.S. accounts.

2013 Tax Planning: 5 Reasons to Start Now

1. The 2013 Tax Season Is Closer than You Think

 

Industry experts generally agree that proper tax planning takes an average of six months – the time it often takes experts to educate themselves on all available opportunities, determine the best approach, and implement the plan. When you consider that six months from today puts us in March 2013, suddenly next year’s tax season doesn't seem so far away. If you really want to get the best tax outcomes in 2013: the time to start planning is now.

2. Uncertainty Looms Over Next Year’s Tax Climate

 

Next year’s tax climate can be best characterized by its extreme uncertainty, which will be brought on by changes resulting from the Supreme Court upholding the Affordable Care Act, as well as by a number of provisions in the Bush tax cuts that are set to expire. This level of uncertainty will make early 2013 a chaotic time for tax planning, and it makes now an even more important time to get the planning process started.

3. You Could Still Benefit from Generous Tax Breaks that May Be Gone Next Year

 

With many provisions of the Bush tax cuts set to expire at year end, starting your 2013 tax planning now means you’ll still have a chance to take advantage of some breaks that may be history by year end. Rates are set to increase on federal income taxes (from 36 percent to 39.6 percent), long-term capital gains (from a maximum tax rate of 15 percent to 20 percent), and dividends (to be taxed as ordinary income). Waiting too long to plan for 2013 may cause you to miss out on some of these tax breaks for good.

4. The Estate Tax Is Set to Increase

 

Significant changes are also set to take place when it comes to the estate tax. This tax is set to increase from 35 percent this year to 45 percent next, and the lifetime exemption amount will go down from $5.12 million to $1 million – unless Congressional action is taken. These changes are likely to impact your plans for 2013, and they make it even more critical that you start the planning process immediately.

5. The Alternative Minimum Tax Will Greatly Expand its Reach

 

Another large tax provision certain to have an impact on many individuals is the higher Alternative Tax Exemption, or AMT patch. This exemption is set to drop from $74,450 this tax year to $45,000 next year. This means that not only will many more people have to pay the AMT patch, but the increase in taxable income will result in even more taxes that individuals pay next year. AMT may not have applied to you in the past, but this year, it may be one of many reasons for you to plan carefully for 2013.

“Regardless of what happens in Congress between now and the end of the year, people can still ensure economic stability for themselves and their future,” said Andrew Lattimer, a partner at BlumShapiro. “But the key is starting now by consulting your tax professionals while there is time to plan without being caught up in what is certain to be a chaotic early 2013."

 

Obama Poised for New Fight With G.O.P. Over Tax Cuts

With a torpid job market and a fragile economy threatening his re-election chances, President Obama is changing the subject to tax fairness, calling for a one-year extension of the Bush-era tax cuts for people making less than $250,000.

Mr. Obama plans to make his announcement at the White House on Monday, senior administration officials said. The ceremony comes as Congress returns from its Independence Day recess, and as both parties and their presidential candidates head into the rest of the summer trying to seize the upper hand in a campaign that has been closely matched and stubbornly static.

House Republicans plan to vote this month to extend for a year all of the Bush tax cuts, for middle- and upper-income people.

The president’s proposal could also put him at odds with Democratic leaders like Representative Nancy Pelosi of California and Senator Charles E. Schumer of New York, who have advocated extending the cuts for everyone who earns up to $1 million. And it will most likely do little to break the deadlock in Washington over how to deal with fiscal deficits, an impasse that has only hardened as Republicans sense a chance to make gains in Congress this fall.

But by calling for an extension for just a year, Mr. Obama hopes to make Republicans look obstructionist and unreasonable. Trying to bounce back from another weak jobs report on Friday, he also hopes to deepen the contrast with his challenger, Mitt Romney. On Friday, the president said Mr. Romney would “give $5 trillion of new tax cuts on top of the Bush tax cuts, most of them going to the wealthiest Americans.”

From their stronghold in the House, Republicans plan to vote this week to repeal Mr. Obama’s health care law, hoping to energize their base even though they know that the campaign to abolish the law, which the Supreme Court upheld, stands no chance in the Democratic-led Senate. Republicans also renewed their call for an overhaul of the tax code.

“You know, what we ought to be doing is extend the current tax rates for another year with a hard requirement to get through comprehensive tax reform one more time,” the Senate minority leader, Mitch McConnell of Kentucky, said on Sunday on the CNN program “State of the Union.”

The struggle to frame the tax debate comes as the campaign moves into a period, only four months before the election, when the perceptions of voters begin to harden. Polls show a persistently tight race, with Mr. Romney closing in on Mr. Obama in certain swing states but with neither candidate able to break out decisively. Control of Congress is also up for grabs, with Mr. McConnell saying on Sunday that he believed the Republicans had a 50-50 chance to regain control of the Senate.

To find a compromise with Republicans on which Bush tax cuts to extend, Ms. Pelosi, the House minority leader, and Mr. Schumer, a member of the Senate Finance Committee, favor making $1 million the cutoff. Above that level, Mr. Schumer has said, people are not likely to spend the savings from lower taxes and help the economy.

Administration officials said they did not believe that the difference between the White House and these Democratic leaders was a big obstacle. They said that whether to use $250,000 or $1 million as a cutoff was more a matter of strategy than a “religious debate,” in the words of one official, who added that many other Democrats favored $250,000.

The White House hopes to squeeze maximum political mileage out of the White House event, surrounding Mr. Obama with families and workers who would benefit from the extension. On Tuesday, he will take his message to Iowa, the battleground state that turned him into a serious presidential contender in 2008.

In Cedar Rapids, Mr. Obama plans to visit the home of Jason and Ali McLaughlin, a high school principal and an account manager at a document-scanning company, a campaign official said. The McLaughlin family, with a combined income of $82,000, would face an extra $2,000 burden next year if the tax cuts on the middle class expired as scheduled, the campaign said.

White House officials insisted that Monday’s move was more than politics. They said it would ease anxiety over the “fiscal cliff” — the combination of tax increases and automatic spending cuts that are scheduled to kick in at the end of this year. That one-two punch, economists say, could deal a heavy blow to an already tender economy unless the White House and Congress work out some kind of compromise.

Proposing a one-year extension, a senior official said, recognizes that Mr. Obama and the Republicans are not likely to resolve the larger debate over whether to extend the Bush tax cuts for everyone or, as Mr. Obama has long advocated, just for the middle class. That debate is likely to be decided at the ballot box, where a victory by Mr. Romney would almost certainly enshrine all the tax cuts.

“To the degree that there is concern about the economy, we’re saying, ‘Let’s extend the middle class tax cuts for a year,’ ” said Gene B. Sperling, director of the White House’s National Economic Council. “Economically, extending tax cuts to those workers will have the most effect on them and the strongest impact on the economy.”

A one-year extension for people making under $250,000 would cost the government $150 billion in revenue, the administration estimates, an amount that would be added to the deficit. In a point of comparison, economists estimate that letting the cuts expire for people above that threshold would generate $850 billion over 10 years.

While Mr. Obama returns to the tax issue this week, House Republican leaders will press forward Wednesday with a vote to fully repeal his health care law, testing their faith that they can make the law part of their attack on Democratic economic policies against evidence that swing voters want to move past the fight.

Just as Mr. Obama needs to worry about divisions on the tax bill, some Republicans are in disagreement over the wisdom of relitigating the health care law. Some Republicans, facing re-election in swing districts, are openly suggesting that some measures should remain. Representative David B. McKinley, a Republican freshman from West Virginia, said prohibitions on lifetime coverage caps and on discrimination against people with pre-existing medical conditions should “absolutely” stay in force, even if health care costs would have to rise.

“If it means increasing my premiums, so be it,” he said. “That’s what insurance is about.”

Mr. Romney’s supporters on the Sunday talk shows hammered away at the idea that Mr. Obama is at fault for the poor economy. Representative Tom Price, Republican of Georgia, said Mr. Romney supported preserving all of the Bush-era cuts for another year because he believes “that will stimulate the economy and provide certainty out there in the job market.”

For Mr. Obama, the biggest advantage of the tax proposal may be simply to move the political discussion off the job market. On his bus tour through Ohio and Pennsylvania last week, the president took pains to present himself as a guardian of the middle class, whose most cherished childhood memories included raiding the ice machine at a Howard Johnson while on a Greyhound tour of the United States.

On Friday, however, when the latest poor jobs number was reported, Mr. Obama was back to talking about the long road to recovery.