Wednesday, Dec. 23
Posted 8 a.m. EDT
I know Christmas is bearing down and you have lots of things left to do. But I couldn't go away for the holidays without bringing you a quick update on some key tax legislation.
So, for all you tax geeks out there -- and for you normal folks who just like to keep on top of what your lawmakers are planning for you taxwise -- here's where major legislation stands.
You never know when this information might come in handy as small talk at a family dinner or holiday party.
Estate taxThe federal tax on large estates will disappear on Jan. 1, 2010. You can thank (or blame) the Senate for this. Although the House managed earlier this month to pass a bill that would permanently extend the top federal estate tax rate of 45 percent on estates worth more than $3.5 million ($7 million for married couples), the Senate couldn't work out a deal, either for permanent law or short-term continuation.
But don't get in a tizzy. The Senate swears it'll get a bill done in early 2010 and it will be retroactive to the first of next year. Since estate tax returns don't have to be filed for nine months after someone dies, that gives them until September. Let's just hope they don't take that long.
Extending tax breaksSeveral popular tax breaks will be no more after Dec. 31. They include the itemized state and local sales tax deduction, the additional standard deduction for real property taxes, the above-the-line deductions for certain tuition and other college expenses and for teachers who use their own money to buy classroom supplies.
Again, the House signed off on a bill that would continue these tax breaks for another year, through Dec. 31, 2010.
Again, the Senate didn't get around to this. The grand plan was to consider tax extenders and the estate tax simultaneously. Maybe next year.
Health care reformThis is why the Senate didn't get to other legislation. It's been struggling to come up with a health care reform package. It looks like this might actually happen. But that's only part of the process.
Eventually, the Senate and House must hammer out one bill from their two separate pieces of legislation. And the latest Senate measure has some significant differences from the previously approved House bill.
To pay for health care changes, the Senate wants to impose a 40-percent surtax on high-end employer-sponsored health plans, you might have heard them referred to as Cadillac plans, and increase the Medicare payroll tax to 2.35 percent for couples with adjusted gross incomes, or AGI, over $250,000 a year and individuals with AGI over $200,000.
On the House side bill would impose a 5.4 percent surtax on high-income earners, defined as couples with AGI over $1 million and individuals with AGI over $500,000.
Flexible spending accounts, or FSAs, those workplace plans where you put in pretax money to pay for unreimbursed medical expenses, also would take some hits. The House bill would remove over-the-counter, or OTC, drugs from the FSA list unless the medications were prescribed by a doctor. The Senate bill also restricts OTC payouts from the plans and also limit would cap employees' annual FSA contributions at $2,500. That threshold would be indexed for inflation.
So there you have it. All the tasks that federal lawmakers just couldn't get done before they left for the holidays. The Capitol Hill to-do list should make for an exciting start of the second session of the 111th Congress.
Read more tax blogs.