Federal Tax Provisions and the State of Iowa

One of the considerations of tax planning is the impact of state taxes.  Many states follow along with most federal provisions for calculating income, but almost every state varies from federal law on at least a few items.  This is often referred to as "de-coupling" from federal law. 

For example, Iowa in 2009 "de-coupled" from federal law on Section 179 expensing and bonus depreciation.  Section 179 expensing was limited to $133,000 (as opposed to $250,000 on federal returns), and bonus depreciation was not allowed at all on Iowa returns.  (Read more about this tax issue in this article.)

Iowa often "de-couples" from other "extender" items such as the front-side deduction for college expenses and the front-side deduction allowed to K-12 teachers for out-of-pocket classroom expenses.  These were a part of the federal tax bill signed into law last week.  The Iowa legislature will decide next month on whether to de-couple from these items and not allow them to be deductible on Iowa tax returns.  It is a safe bet that the legislature will vote to de-couple on these items, and also on the increase in Section 179 and bonus depreciation.

One federal provision that Iowa is coupling with is the provision in the "health care bill" passed earlier this year that allows people to keep children on their health insurance through age 26.  The value of this insurance coverage will be tax-free for federal purposes, and Iowa has announced that it will go along with federal law in this case.  Read more in this informational post from the Iowa Department of Revenue.

IRS Announces Mileage Rates for 2011

The IRS has released the mileage rates for 2011.  The regular mileage rate increased by 1 cent; the rate for medical mileage increase by 2.5 cents; and the rate for charitable mileage remains the same as in 2010.

• Mileage rate for 2011:  51 cents per mile (up 1 cent from 2010)
• Medical mileage rate:  19 cents per mile (up 2.5 cents from 2010)
• Charitable mileage rate:  14 cents per mile (same as 2010)

Lawmakers Urge IRS to Allow Breastfeeding Supplies as a Medical Expense

Iowa Senator Tom Harkin was among more than 40 Democratic lawmakers in the House and Senate who wrote to the IRS last week, urging the IRS to recognize breastfeeding supplies as a medical expense.  Currently, breastfeeding supplies are not considered a medical expense, so the cost of the supplies is neither deductible, nor eligible for reimbursement from a flex plan or HSA. 

In their letter to the IRS, lawmakers say that the "IRS is at odds with the growing body of medical evidence showing that breastfeeding has proven health benefits for both mothers and babies."

You can read the letter here, and a news article about it here.

Changes Coming to Flex Accounts

Those of you who take part in a flex plan or an HSA for reimbursement of medical expenses will want to take note: starting in 2011, you will no longer be able to claim reimbursements for purchases of non-prescription, over-the-counter medicines. You'll only be able to claim reimbursements for medicines purchased with a prescription. The only exception to this will be purchases of insulin.

This does not apply to "non-medicine" purchases relating to your health, such as crutches or bandages. You can still be reimbursed for those purchases.

This change affects flex plans, HSAs and Archer MSAs and goes into effect January 1, 2011. The change comes as part of the health-care reform bill passed earlier this year.