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New year brings new laws targeting your money, health

From Bob Costantini, CNN
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New year, new laws
  • 2011 brings a bit of payroll tax relief, with the tax dropping from 6.2% to 4.2%
  • The overall amount of increased take-home pay depends on income
  • Key provisions of health-care legislation take place in 2011
  • Relief for seniors in the "doughnut hole" kicks in

(CNN) -- New laws going into effect in the new year could have a major effect on your pocketbook and your health. Here are some highlights:

Your pocketbook

In December, President Obama worked out a deal with Republicans to extend the Bush-era tax cuts for two years. But to also help goose the economy, the package brings a bit of payroll tax relief in the form of a new Social Security tax break.

Employees will pay 4.2% of the first $106,800 of their wages into Social Security instead of 6.2%, which, according to CNNMoney's Rich Barbieri, means "workers will have a little more cash in their pockets."

Unlike in tax rebate times, when stimulus checks were sent to most working Americans in lump sums of hundreds of dollars, the payroll tax reduction is designed to go almost unnoticed.

"Less money will be withheld from their paychecks," Barbieri notes.

The feeling is that most people won't put that tiny cushion aside and, instead, will just pass it right into the economy with regular spending.

Tax cut deal: What to expect in your paycheck

Individually, the overall amount of increased take-home pay depends on income.

"For people at the higher end, it's about $2,000 a year extra in sort of 'walking around' money," Barbieri says.

Tax breaks may boost paychecks by $40 a week

The payroll tax holiday is expected to cost about $112 billion. The current plan gives workers a break on only their half of the Social Security tax. Employers pay the other half.

Costliest stimulus, weakest payoff

But when former President Clinton was pressed into service by Obama to help sell the tax deal, he said that "payroll tax relief is, according to all the economic analyses, the single most effective tax cut you can do to support economic activity. This will actually create a fair number of jobs."

Obama enlists Clinton to sell tax deal

Given how late in the year the law came about, it may take employers a couple of pay periods to get everything working as it should.

The measure means more take-home pay for many workers, although not for all. The payroll tax break will not be as generous for many low- and middle-income households as the tax cut it is replacing.

Tax cut deal: 51 million will take home less

The tax package Obama signed also includes provisions to expand the child tax credit, college tuition tax credits, relief from the "marriage penalty," an extension of investment tax rates and an extension of jobless benefits.

Your health

It's been nine months since Obama signed the health care reform law, and parts of the sweeping measure take effect this year.

If you're a senior citizen, for example, and high prescription drug costs put you in the "doughnut hole" -- the coverage gap that develops when Medicare stops paying for drug coverage and patients can't afford to pay for drugs out of pocket -- you could see relief soon.

Up to now, seniors hit the doughnut hole once they and their insurers purchased $2,800 worth of medications. The next chunk -- up to a $4,550 out-of-pocket maximum -- was not reimbursed by insurance.

2011: Incredible shrinking doughnut hole (and more)

At a suburban Baltimore retirement community, Phyllis Lansing said she senses "a quiet concern" among her elderly neighbors that "resources are running thin; their health care needs are increasing, and they're getting caught in a squeeze." That's especially true toward the end of the year.

The 76-year-old has schooled herself on the doughnut hole but notes that many seniors are "part of an age group that will not advertise (to loved ones) how anxious they may be feeling" about paying thousands of dollars out of pocket.

But starting in 2011, seniors like Lansing can get a 50% discount on covered brand-name drugs if they are in the doughnut hole. Additional discounts on brand-name and generic drugs will be phased in to completely close the hole by 2020.

Also in 2011, Medicare will cover certain preventive services without charging you Medicare Part B (coverage for doctors' services, outpatient care, home health services) coinsurance or deductible.

The Department of Health and Human Services estimates that as many as 25 percent of those on Medicare may be going without prescriptions, at some point, because of the doughnut hole's sudden out-of-pocket costs.

Big changes to your health insurance

The health care law requires insurers to direct 80% to 85% of premiums toward medical care, an effort to cut down on bureaucratic costs and exorbitant salaries.

Timeline: When health care reform will affect you

One change that could have a negative impact on your wallet will hit you at the local drug store, where you will no longer be reimbursed by flexible spending accounts or Health Savings Accounts for over-the-counter medications unless you have a prescription from the doctor.

Other changes coming in 2011 that could effect you include:

• Medicare will provide free annual wellness visits and personalized prevention plans. New plans will be required to cover preventive services with no co-pay.

• Additional tax for health savings account withdrawals before age 65 for nonqualified medical expenses will increase from 10% to 20%. Additional tax for Archer medical savings account withdrawals not used for qualified medical expenses will increase from 15% to 20%.

• A plan to provide a vehicle for small businesses to offer tax-free benefits will be created. This would ease the small employer's administrative burden of sponsoring a cafeteria plan.

• The Medicare payroll tax will increase from 1.45% to 2.35% for individuals earning more than $200,000 and married couples filing jointly above $250,000.

CNN's Kristi Keck contributed to this report.