By Jayme Mendenhall
The Third Wave: The Alternative Minimum Tax (AMT) and Employer Tax Hikes
The AMT was created in 1969 to ensnare a handful of taxpayers. The AMT operates as a parallel tax system to the regular tax system with its own definition of taxable income, exemptions, and tax rates. It was originally called the "millionaire's tax", in that it targeted only the wealthiest households. The income triggers were not indexed for inflation so as incomes rose the AMT touched more of the middle class. Without periodic Congressional action to temporarily raise the income limits that trigger the AMT, estimates are between 22 and 28 million families will be required to pay the tax now, this is up from 4 million last year.
Taxes will be raised on every business. Name one business that won’t be affected by the scores of tax hikes that are coming. The biggest is the loss of the “research and experimentation tax credit,” but there are many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs. High tax burdens will crush efficiency, creativity and innovation; who can put a price tag on that?
Small business expensing will be slashed and 50% expensing will disappear. Small businesses can normally expense (rather than 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 equipment purchases. In January of 2011, all of it will have to be depreciated.
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."
What this means is that, starting in January, insurance will be income on W2's. In 2011, W-2 tax forms sent by employers will be increased to show the value of the health insurance given by the company. It does not matter if that's a private concern or governmental body of some sort. Individuals and families will be required to pay taxes on a large sum of money that they have never seen. Increasing additional gross income by $15-20 thousand will put many people into a higher tax bracket. Even retiree’s gross income will go up by the amount of insurance they receive.
Tax policies that will be changing for education include:
- Tax Benefits for Education and Teaching Reduced
- Deductions 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
- 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
The tax tsunami that is headed towards the American public is the largest set of tax increases ever to hit at one time in the history of the United States. The devastation to our economy is unimaginable at this point and looks to be unprecedented in the annals of our history. But don’t fear, there are some jobs being made by this administration; they are in the IRS. So if these new tax hikes hit you hard enough, you may consider finding work there. It looks like they will be very busy the next few years.