Few tax increases take effect January 1, 2011
Come the new year, new tax structures take effect. The Jan. 1, 2011, tax increases are a matter of heavy debate. Because Bush-era tax cuts have been extended, there will actually be very few Jan. 1, 2011 tax increases.
Bush tax cuts negate January 1, 2011, tax increases
Many of the worries about tax increases on Jan. 1, 2011, had to do with the expiration of Bush-era tax cuts. In late December, most of the Bush-era tax cuts were extended, eliminating most of the rumored tax increases for the year. This includes the child tax credit and marriage penalty relief, which will remain at current levels come Jan. 1, 2011. The “Death Tax” will go up, but only for estates worth more than $5 million. The extension of Bush-era tax cuts will have to be revisited by the next Congress, however.
The January 1, 2011 tax increases for medical expenses
There are some tax adjustments coming to medical care and medical accounts for 2011. First, the value of health insurance benefits must be reported on an employee’s W2, but that is not included in figuring the employee’s taxes — it is informational only. Those who use Health Savings Accounts, Flexible Spending Arrangements and Health Reimbursement Arrangements will see a “tax increase” when the rules governing those accounts are brought into compliance with general medical exception rules — no more tax-free purchases of aspirin. The penalty for non-health expenditures from these accounts is going to go up to 20 percent. FSA accounts will also have a $2,500 cap on spending for special needs children.
January 1, 2011 tax breaks
While some tax increases kick in Jan. 1, 2011, there are also tax breaks that will help soften the blow. A payroll tax holiday has been implemented, reducing the payroll tax for Social Security to 4.2 percent, rather than the current 6.2 percent for two years. There are also tax breaks built in for many businesses, and a 13-month extension of unemployment insurance will keep checks flowing to many of the nation’s unemployed workers.