One thing I can't stand is when discussions of political policy turns completely self-centered and the entire focus of the frum community is inward, i.e. what's in it, or not in it, for me? But one reason I'm pointing out the tax changes coming your way and mine is because this is something the frum world needs to grapple with and get prepared for now. In January 2011 your withholdings should go up. If you are self-employed/contractor, prepare to make greater quarterly payments. In 2012, a higher tax bill is coming. So, feel free to self-center the comments and let us know which tax hikes are going to affect you, and how they will affect your ability to give tzedakah and/or pay yeshiva tuition.
Numbers would be even better (feel free to mark yourself under an anon# name to preserve privacy). I'm not usually so open, but my current calculation of tax hikes (assuming no change in income) between 2010 and 2011 to be in the neighborhood of $2600, which doesn't include changes on dependent care credits and the use of Coverdells. Nor does that include additional tax which we will incur regardless of changes in income as our itemized deductions fall (yeah for refinancing, boo for the rest of it). I've included the social security and state tax damage from capping the Flexible Spending Accounts in my calculation. To put the $2,600 in perspective, it isn't peanuts.
It if probably a good thing that I'm already convinced that yeshiva tuition isn't going to be something we can afford long into the future because, I hate surprises! We might as well start mentally preparing now. As I was trying to explain to a friend recently, adding another tuition + covering the steep tuition increases + all the other expenses that come with age isn't a simple matter of just cutting back on retirement savings because there isn't a 1:1 relationship. (Someone really should remind me not to enter tax planet while on a pleasant day in the park with the kids and the other Moms because I just start running scenarios and talking mostly to myself. Not to be politically incorrect, but ladies generally like to give "chizuk" not listen to ramblings from an accountant about teetering on the edge of credit phaseouts, the next tax bracket, and how big medical expenses are about to become even less affordable).
The article detailing many tax hikes is cut and pasted below. There is a lot of bad news in here for Americans hoping for an economic recovery. There is a tax hike in here for everyone, and by that I mean almost everyone (yes, even Kollel Families!). The 10% tax bracket is being eliminated for starters. Below is a chart of what the estimated tax brackets for 2010 and 2011 for those who want to start making calculations. My apologies for only including Married Filing Jointly. I'm not attempting to discriminate, but to not overload a post with too much information. A few comments, as usual, in orange will be interspersed in the article.
2010 Estimated Tax Brackets (Married Filing Jointly)
10% Bracket $0 – $16,750
15% Bracket $16,750 – $68,000
25% Bracket $68,000 – $137,300
28% Bracket $137,300 – $209,250
33% Bracket $209,250 – $373,650
35% Bracket $373,650+
2011 Estimated Tax Brackets (Married Filing Jointly)
Tax Bracket Married Filing Jointly
15% Bracket $0 – $70,040
28% Bracket $70,040 – $141,419
31% Bracket $141,419 – $215,528
36% Bracket $215,528 – $384,860
39.6% Bracket Over $384,860
Six Months to Go UntilThe Largest Tax Hikes in History From Ryan Ellis on Thursday, July 1, 2010 4:15 PM
BREAKING: Wounded Warriors Face New Tax This Independence Day
In just six months, 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% [excluding those who get hit by the AMT, all benefit from the 10% bracket. My experience tells me that many large families and kollel families sit in the 10% bracket]
- 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%
Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. The child tax credit will be cut in half from $1000 to $500 per child. [Ouch!
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. [In other words, don't think a yerusha will pay your bills. . . and, no, tax planning isn't just for the super rich].
Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013. [Confusing sentence. In other words, dividends will be taxed as regular income and then, there will be an additional tax on investment income, including royalities and rental properties, come 2013 as part of the Health Care Package].
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) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin). [In other words, if you overshoot on your FSA come 2011, you will end up forfeiting the funds because you will no longer be allowed to load up on Advil at tax advantaged prices].
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, D.C. (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. [Special Needs is only one demographic sure to be hit by the lowering of the FSA. A few other demographics: families with lots of kids, families paying for catastrophic care, any family paying for braces or major dental work].
The HSA Withdrawal Tax Hike. This provision of Obamacare increases the additional tax on non-medical 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.
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. [I wish I understood the AMT better].
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."
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.
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. Coverdell 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. [Unlike most employees who must meet a 2% floor before deducting any business expenses as an itemized deduction, educators have been given a nice gift, decreasing both federal and state income tax. Like I said, these changes are broad and there is an increase in there for everyone].
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. [Shuls, schools, and all tzedakas listen up. . . the news isn't good].
Read more: http://www.atr.org/sixmonths.html?content=5171#ixzz0sgPL3f3c