Actors’ Equity has helped spearhead the introduction of a bill that aims to bring back tax deductions for performing artists.
Individual tax deductions including union dues, agent commissions and classes were eliminated after President Donald Trump signed the Tax Cuts and Jobs Act into law in December 2017. The bill, set to be introduced in the House of Representatives Wednesday by Rep. Judy Chu (D-CA) and Rep. Vern Buchanan (R-FL), seeks to expand the income limit under an existing tax provision unchanged since the Reagan era.
The Qualified Performing Artist Tax Deduction, signed into law in 1986, allows professional actors and others to deduct expenses relating to their profession, with an adjusted gross income eligibility limit of $16,000. The deduction remains part of the tax code, but the $16,000 eligibility limit has not been changed since 1986.
The new bill, entitled the Performing Artist Tax Parity Act, seeks to raise the income eligibility limit to $100,000 for single taxpayers and to $200,000 for a couple filing jointly.
Equity submitted testimony alongside SAG-AFTRA to the House Ways and Means Committee earlier this year and retained lobbying firm Meltsner Strategies to help advise on strategy. The union and its members have had more than 40 meetings with Congressional offices over the past year.
The 2018 tax season was the first time actors saw the impact of the lack of deductions on their tax returns. Though many did prepay union dues and other items before the end of 2017 so that those items could be deducted for that tax year, there was a limit to how much could be paid ahead of time, said Sandra Karas, a tax attorney who prepares returns for Equity members and who worked with Equity on the testimony and the new legislation.
“It’s been an unhappy [tax season],” Karas said. “In many cases the refunds have disappeared altogether.”
The total number of refunds decreased 24% this tax season, according to the Internal Revenue Service, which compared data from Feb. 2, 2018 and Feb. 1, 2019. The average refund amount decreased to $1,865 from $2,035.
Still, the idea behind the Tax Cuts and Jobs Act was that tax rates were generally lowered, thus delivering more money per paycheck. The issue was that many employees did not update their W-4 forms to have more tax withheld, which, for many, resulted in a smaller refund or a need to owe money, said Cindy Hockenberry, director of government relations and federal tax research at the National Association of Tax Professionals.
While the effectiveness of the Tax Cuts and Jobs Act is a politicized question, Hockenberry said the loss of personal deductions had a negative impact on many taxpayers.
“For employees, losing the employee business expense deduction was huge,” Hockenberry said.
Equity members who were New York and California state residents had the benefit of being able to deduct individual expenses on their state returns, but still took a hit on federal returns. But overall, middle class and working class actors, who typically spend 20% to 35% of their gross income on businesses expenses every year, were particularly hard hit, according to Karas.
“Those who have agents and managers saw a huge bite out of their income and their taxes at the same time,” Karas said.
This previous tax season, Drew Wildman Foster, a Broadway actor who was part of the “Summer” cast, and his wife, Jesse Wildman Foster, who is currently a swing in “Pretty Woman,” filed jointly for the first time. Because of the joint filing, and the fact that both worked on Broadway for the majority of 2018, the couple made more money than ever before and paid more in taxes as part of a higher tax bracket.
This year they owed $4,000, but the issue, for Drew, was the fact that they were not able to deduct agent and manager fees, which are taken directly out of their paychecks.
“We’re being taxed on money we never saw,” Wildman Foster said.
If the “Pretty Woman” run continues, the couple is considering self-incorporating, which would allow them to deduct those expenses. Though the process is expensive and doing so means that the actors would not be able to receive unemployment benefits between jobs, Drew says the return of the deductions would be worth it.
At Equity, the hope is that the new bill will be enacted in time to bring back deductions for all performers.
“We’re not the only constituent group paying higher taxes, but our group, I think, has been disproportionately affected,” Karas said.