Before you know it, the largest tax hikes in the history of America will take effect. They will hit families and small businesses in three great waves on January 1, 2011:
First Wave: Expiration of 2001 and 2003 Tax Relief
In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families.
These will all expire on January 1, 2011:
Personal income tax rates will rise. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed). The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:
- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6% Yes these rates are due to change unless the “sunset provision” is extended.
Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. Yes marriage penalty is back.
The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples (this will be 167% of single) relative to the single level. The dependent care and adoption tax credits will be cut. Dependent care drops from 3,000 to 2,400 and adoption credit drops from 12,170 to 6,000.
The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1, 2011, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a
retirement account could easily pass along a death tax bill to their loved ones. Yes as it stands now 1million unified credit with rates from 18% to 55%. This is currently being worked on in congress.
Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. Yes if held over 5 years the rate is 18%. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. Not exactly true – dividends will be taxed at ordinary rates which range from 15% to 39.6% so the 39.6 is the maximum rate. These rates will rise another 3.8 percent in 2013. Only if your income is over 200K for single and 250K for married joint.
Second Wave: Obamacare
There are over twenty new or higher taxes in Obamacare. Several will first go into effect on January 1, 2011. They include:
The “Medicine Cabinet Tax” Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pretax dollars to purchase nonprescription, over-the-counter medicines (except insulin). Yes however, prescriptions still count for itemized deductions and/or these listed pre-tax accounts. Over the counter has been eliminated.
The “Special Needs Kids Tax” This provision of Obamacare imposes a cap on flexible spending accounts (FSAs) of $2500 (Currently, there is no federal government limit). There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children.
There are thousands of families with special needs children in the United States , and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in
Washington , DC ( National Child Research Center ) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. Yes cap starts in 2013
The HSA Withdrawal Tax Hike. This provision of Obamacare increases the additional tax on nonmedical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent. Only if non-medical withdrawal.
Third Wave: The Alternative Minimum Tax and Employer Tax Hikes
When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise-the AMT won’t be held harmless, and many tax relief provisions will have expired. The major items include:
The AMT will ensnare over 28 million families, up from 4 million last year. According to the left-leaning Tax Policy Center , Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families-rising from 4 million last year to 28.5 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level. The AMT was created in 1969 to ensnare a handful of taxpayers. No AMT patch on the horizon yet.
Small business expensing will be slashed and 50% expensing will disappear.
Small businesses can normally expense (rather than slowly deduct, or ”depreciate”) equipment purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases
of equipment. In January of 2011, all of it will have to be “depreciated.” This is true but the Senate just passed a bill to increase the 179 deduction to 500K for 2010-2011 plus 250K for leasehold improvements and extends the 50% depreciation bonus. They are expecting the House to pass this also with no changes.
Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place. The biggest is the loss of the “research and experimentation tax credit,” but there are many, many
others. Combining high marginal tax rates with the loss of this tax relief will cost jobs. Bill is in Senate now to extend credit.
Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Covered Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.
Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual ”required minimum distribution.” This ability will no longer be there. Yes, have to take the distribution and then make the contribution. The direct contribution was a great tax saver.
PDF Version Read more:
http://www.atr.org/six-months-untilbr-largest-tax-hikes-a5171#%23ixzz0sY8waPq1
Now your insurance is INCOME on your W2′s……WRONG!!!
One of the surprises we’ll find come next year, is what follows – - a little ”surprise” that 99% of us had no idea was included in the “new and improved” healthcare legislation . . . the dupes, er, dopes, who backed this
administration will be astonished!
Starting in 2011, (next year folks), your W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are given by the company. It does not matter if that’s a private concern or governmental body of some sort. If you’re retired? So what; your gross will go up by the amount of insurance you get.
You will be required to pay taxes on a large sum of money that you have never seen. Take your tax form you just finished and see what $15,000 or $20,000 additional gross does to your tax debt. That’s what you’ll pay next year. For many, it also puts you into a new higher bracket so it’s even worse.
This is how the government is going to buy insurance for the15% that don’t
have insurance and it’s only part of the tax increases.
Not believing this??? Here is a research of the summaries…..
On page 25 of 29: TITLE IX REVENUE PROVISIONS- SUBTITLE A: REVENUE OFFSET
PROVISIONS-(sec. 9001, as modified by sec. 10901) Sec.9002 “requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer sponsored group health coverage that is excludable from the employees gross income.” Not true – insurance will get reported on 2011 W-2 and not be included in gross income. It will be reported in box 14 as “other information”. I am sure going forward they will use this info for something – time will tell.
Joan Pryde is the senior tax editor for the Kiplinger letters. Go to Kiplingers and read about 13 tax changes that could affect you. Number 3 is what is above.
Tags: Government, Politics
