What’s New for 2011?

On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed by President Obama. The main focus of the new laws was to extend the tax breaks for two more years that were enacted under President Bush, and were about to expire at the end of 2010. With the passage of the new laws, virtually all taxpayers, including lower income and wealthy, will benefit. Here is an overview:

Individual Tax Brackets: Individual tax rates are going to stay the same, from between 10% to 35% of taxable income. Without the new laws they were set to rise from between 15% to 39.6%. This is a benefit for all taxpayers.

FICA Payroll Tax Cut: For one year, employees will see a reduction of their FICA payroll taxes, from 6.2% to a reduced rate of 4.2%. Look for this change starting with your first paycheck of 2011.

Capital Gains and Dividends: The rate on capital gains and dividends will continue to be between 0% to 15%, depending upon your tax bracket. Capital gains were set to rise to 20%, and dividends were to be taxed as high as 39.6%.

Child Tax Credit: The child tax credit will continue to be $1,000 per child, and will phase-out for joint filers with more than $110,000 of adjusted gross income, and at $75,000 for single filers. The credit was set to be reduced to $500 per child.

There are many other changes that will positively impact almost all taxpayers. These include: a one-year patch to the alternative minimum tax, extension of the American opportunity tax credit, bonus depreciation, the earned income credit, and several more. If you have any questions on how these changes will impact you, don’t hesitate to contact our office.