2011 Tax Changes

The 2011 tax changes are here. Understanding how new IRS rules affect you can potentially save (or cost) you hundreds if not thousands of dollars. Many of the cuts that were enacted by President Bush in 2001 and 2003 were due to expire, but were extended.

Marginal Rates Remain Same:

In 2011 top earners will see the same 33% and 35% marginal rates that they saw in 2010 with the top rate effecting taxable income of $379,150. Remember this is based on your taxable income, not your "gross income". For all the tax rates please visit www.irs.gov for the 2011 Income Tax Rate Table.

Federal Estate (Death) Tax:

If you were wealthy and passed away in 2010, your heirs got a huge bonus ­zero estate taxes. Not so for 2011, the "death tax" has been overhauled to give a one time per person $5 million exemption and a top rate of 35%. For married couples the exemption is $10 million. This is far less than the 55% tax rate some might recall, but still a drain on the ability for some to pass down their estates to their loved ones.

Long Term Capital Gains Rate 15%:

Capital gains were supposed to revert to 20% but the extension of the Bush Tax Cuts kept them at a maximum of 15%. The holding period is the same 1 year. Any gain less than that would get taxed at your marginal rate for ordinary income.

Earned Income Credit:

Filers with three or more children who are in the highest income levels will see temporary increases repealed.

2011 Child Tax Credit:

In 2011, the child tax credit was supposed to return to $500 from the $1,000. Instead the credit has been extended and is still $1,000. Taxpayers must earn more than $3,000 in order for the credit to be refundable.

In most cases, the 2011 credit is limited to the amount of your tax liability. In other words, if your credit is bigger than your liability, your liability is just reduced to zero, and the rest is lost.

In some instances you can get a child tax credit refund. You would get a refund of the difference between your tax credit and the amount of taxes you owe.

Alternative Minimum Tax (AMT):

It is anticipated that in 2011, an automatic annual inflation adjustment will be applied to this exemption. Currently hitting the middle class more than the intended higher class, this change will account for inflation.

2% Reduction in Payroll Taxes:

The biggest change is that social security taxes for 2011 were lowered by 2 percentage points for both the employee and employer. This gives employees up to benefit was set to expire at the end of 2011 but Congress has signed a short extension.


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