Information extracted from the Kiplinger Letter, US Dept of Labor, and US Government Bill (HR 3200)
Several Types of Tax Increases
Beginning January 1 of 2011, there will be many changes
affecting the income taxes that you pay. These include
• Personal income tax
• Health care related
• Insurance and death taxes
• AMT provisions
• Employer tax hikes
• Loss of deductions on many items
• Small business tax hikes
The combination of these taxes will amount to the largest tax increase in US History.
Personal Income Tax Increases
• On January 1, 2011, the current Tax Relief
program instituted between 2001 and 2003 will
expire unless congress votes to extend it.
• This will impact every individual who is a
taxpayer in the US.
– About 47% (of US households) will pay no federal income taxes
at all for 2009. Either their incomes were too low, or they
qualified for enough credits, deductions and exemptions to
eliminate their liability. That's according to projections by the
Tax Policy Center, a Washington research organization.
Personal Income Tax Rates
• 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%
This means that if your household has a taxable
income of $40,000, your taxes will rise by
approximately $1200 for the year 2011. That’s
about a $23/week INCREASE.
Personal Tax: Marriage and Family
a) The "marriage penalty" (narrower tax brackets for
married couples) will return from the first dollar of income
meaning that married couples will pay a higher rate of tax than
two single people living together.
b) The standard deduction will no longer be doubled for married
couples relative to the single level. This is in addition to a) above.
c) The dependent care and adoption tax credits will be cut.
d) The child tax credit will be cut in half from $1000 to $500 per
In effect, this makes more of your income taxable. For example, if you
can only deduct $500 per child, your taxable income rises by $500
therefore your taxes rise.
Other Personal Income Taxes
• The return of the “death tax.” However, the absence
of the death tax was a quirk which only applied to
• Higher tax rates on savers and investors:
– The capital gains tax will rise from 15 percent this year to
20 percent in 2011. (Anyone who sells their stock will be
affected by this.)
– The dividends tax will rise from 15 percent this year to
39.6 percent in 2011. This is more than double the current
tax. (Many elderly and retired people depend upon
dividends for their income. Grandma will have less money
to loan you!)
– These rates will rise another 3.8 percent in 2013.
Taxes Related to Health Care Bill: HR 3200
Although the taxes related to the health care bill phase in over several years, these
will begin on January 1, 2011:
a) The "Medicine Cabinet Tax:“ Americans will no longer be able to use
health savings account (HSA), flexible spending account (FSA), or
health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-
the-counter medicines (except insulin).
b) The "Special Needs Kids Tax:” This imposes a cap on flexible spending accounts
(FSAs) of $2500 (Currently, there is no limit). This particularly will impact the
parents of special needs children who use FSAs to pay for special needs education.
c) The HSA (Health Savings Account) Withdrawal Tax Hike.
This provision increases the additional tax on non-medical early withdrawals from
an HSA from 10 to 20 percent.
All of these effectively increase taxable income by allowing fewer deductions.
AMT: Alternative Minimum Tax
• When first proposed in 1969, the Alternative Minimum Tax (AMT) was designed as
a tax for "the wealthy.“
• This tax was not indexed. That means the entry level did not change with average
• In 1969 the median* household earned between $35,000 a year.
• In 2010 the median household earned $52,000 a year.
• Originally the AMT was intended to target ONLY 155 high-income households
that had been eligible for so many tax benefits that they owed little or no income
tax under the tax code of the time.
• Due to increasing household incomes, that number has increased tremendously.
• Last year the AMT impacted 4 million people.
• In 2011 the AMT is expected to impact as many as 28 million families.
• What number is now considered “wealthy” by the government?
*The median is the middle point of any set of data when it is arranged in order from
highest to lowest.
What Triggers the AMT?
Any or all of these can trigger the AMT tax:
• If your gross income is above $100,000. (not taxable
• If you have large numbers of personal exemptions.
• If you have significant itemized deductions for state and
local taxes, home equity loan interest, deductible medical
expenses, or other miscellaneous deductions.
• If you exercised incentive stock options (ISOs) during the
• If you had a large capital gain.
• If you own a business, rental properties, partnership
interests, or S corporation stock.
Small Business Taxes to Increase
• Small business expensing will be slashed and 50% expensing will
disappear. This effectively raises small business’ taxable income.
• Small businesses had been able normally to expense (rather than
slowly-deduct, or "depreciate") equipment purchases up to
$250,000. This will be cut $25,000. This can increase a small
business’ taxable income by $225,000.
• Larger businesses can currently expense half of their purchases of
equipment providing them a distinct advantage over small
• In January of 2011, all of it will have to be "depreciated.“ That
means that the tax deductions will have to be spread out over
about 10 years making it difficult for small businesses to invest in
Other Business Taxes to Increase
• There are literally scores of tax hikes on
businesses of all kinds 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 mean that companies have fewer
resources to create new jobs.
Education and Teaching Related Taxes
• 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 that they paid out of their own pockets.
• Coverdell Education Savings Accounts will be cut.
• Employer-provided educational assistance is curtailed.
That means your boss might not be able to help you
out with your tuition.
Charitable Tax Deductions Decreased
• Charitable Contributions from IRAs will 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.
• What this meant was that retired people after the age of 70 could
take money from their IRA accounts and donate it to charity AND
get a tax credit for that donation. They can still donate the money,
but no more tax credit. Without the tax credit, fewer people will
make charitable donations and therefore have higher taxes and
charitable organizations will have less income.
• This contribution also counted toward an annual "required
minimum distribution." This ability will no longer be there.
*Read more: <http://www.atr.org/six-months-untilbr-largest-tax-hikes-a5171
Your Health Insurance Will Become
The health insurance that your company pays for you will show up as
INCOME on your W2's!
• Starting in 2011, your W-2 tax form sent by your employer will show the value of
whatever health insurance you are given by the company.* If you are not at a
taxable income level yet, this could throw you into one.
• If you're retired your gross income will go up by the amount of insurance you get.
• This will increase your taxable income. Many companies pay $10,000 to $25,000 a
year for health insurance per employee. Add that to your gross pay from now on.
For many, it also puts you into a higher tax bracket.
*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 all Tax Increases are Federal:
Other Taxes Hidden
• Did you notice it costs more to register your car
than before? Essentially that’s a tax increase.
• How about a fishing license? That went up which
essentially is a tax increase.
• Many towns, due to the real estate recession,
reduced the value of homes but increased the
millage (the % of the home’s value which is
taxed). Some homeowners were surprised to
find that their property taxes went up even
though the value of their homes went down.
• Cigarette taxes increased $1 a pack.
Increased Taxes Means Less
• When you have a tax increase, unless you
have an income increase to offset it, that
means that your disposable income
• If your disposable income decreases by
$25/week, how will that affect your life?
• If a small business owner’s taxes increase
thereby reducing his business’ disposable
income, will he be able to hire new staff?