Overview of the Job Creation and Worker Assistance Act of 2002

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This is to alert you to several provisions of the "Job Creation and Worker Assistance Act of 2002," signed by President Bush on March 9, 2002, that may affect your tax plans.

In addition to provisions affecting unemployment compensation and the Temporary Assistance for Needy Families (TANF) Grant program, the new law includes temporary rules aimed at stimulating new business investment or providing tax relief for struggling businesses, extensions of several expired or expiring tax provisions, and a set of temporary rules intended to facilitate recovery in the area of New York City devastated by the September 11, 2001, terrorist attack. Also, the new law contains technical corrections to previously enacted tax legislation, such as last year's "Economic Growth and Tax Relief Reconciliation Act of 2001," plus some miscellaneous items, including a temporary new rule that gives teachers a modest tax break for their out-of-pocket costs of classroom materials.

The broadest national impact is likely to come from two of the business-focused tax provisions. The first of these allows a 30% first-year depreciation bonus on certain property acquired after September 10, 2001, and before September 11, 2004. The principal types of qualifying property are computer software, assets having a depreciation period of 20 years or less, water utility property, and leasehold improvements made in business (i.e., nonresidential) premises. In order to qualify, the property must be placed in service before January 1, 2005, except that certain constructed property can qualify if placed in service before January 1, 2006.

The other broadly applicable provision will allow businesses that suffer net operating losses ("NOLs") in 2001 or 2002 to apply those losses against taxable income as far back as five tax years instead of the general two-year "carryback" period. Thus, for example, if a firm was profitable before 2001, but suffered an operating loss that year, the loss could be used to reduce its taxable income—and thus generate tax refunds—for tax years as far back as 1996.

Among its other business-related provisions, the new law:

•  Extends both the Work Opportunity Tax Credit and the Welfare-to-Work Tax Credit for two years (through December 31, 2003).

•  Extends the availability of the tax credit for the production of electricity from qualified wind energy, "closed-loop" biomass, or poultry waste to facilities placed in service before January 1, 2004.

•  Provides technical clarifications to several pension-related provisions contained in last year's economic stimulus legislation.

•  Defers the phase down of the deduction for Qualified Clean-Fuel Vehicle Property such that the full deduction will be available for qualified vehicles placed in service in 2002 and 2003 and a reduced deduction will be available for qualified vehicles placed in service in 2004, 2005, and 2006.

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