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Beyond the Numbers January - February 2011

Inflation Helps Increase Tax Benefits in 2011
By Danielle Felice, Tax & Business Services

On Thursday December 23, 2010, the IRS announced the most up to date changes to tax benefits for the tax year 2011. This announcement reflects the final changes to tax rates and benefits as accounted for not only by inflation, but also by The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 which was signed by President Obama on Friday December 17, 2010.

Dollar amounts for tax provisions must be revised each year as a result of inflation adjustments. Such adjustments affect virtually every U.S. taxpayer in one way or another. The IRS previously released inflation adjustments in October 2010. The tables below highlight the additional changes as announced in December:

TAX BENEFIT

AMOUNT FOR 2011

CHANGE DUE TO INFLATION,
AS COMPARED TO 2010

Personal/Dependent Exemption

$3,700

Increased $50

Standard Deduction

Married filing Joint

$11,600

Increased $200

Single

$5,800

Increased $100

Married filing Separately

$5,800

Increased $100

Head of Household

$8,500

Increased $100

Additional deduction for taxpayers who are blind senior citizens

$1,150 if married,
or
$1,450 if single/head of household

Increased $50

Increased $50

Maximum Earned Income Tax Credit for Low/Moderate Income Workers

 $5,751 Increased $85

Maximum Earned Limit for

Low/Moderate Income

Workers

 $49,078 Increased $716

*The earned income tax credit is not allowed for taxpayers who have investment income in excess of $3,150.

Individual Tax Brackets as adjusted for inflation are outlined as such:

INDIVIDUAL TAX BRACKETS AS ENACTED
ORDINARY INCOME TAX BRACKETS SINGLE JOINT 2011-2012
    $0 – $8,500 $0 – $17,000 10%
    $8,501 – $34,500 $17,001 – $69,000 15%
  $34,501 – $83,600 $69,001 – $139,350 25%
  $83,601 – $174,400 $139,351 – $212,300 28%
  $174,401 –$379,150 $212,300 – $379,150 33%
  Over $379,150 Over $379,150 35%
Capital Gains Top Rate   15%
Dividend Top Rate   15%
Interest Income Top Rate   35%


ESTATES & TRUSTS TAX BRACKET AS ENACTED
ORDINARY INCOME TAX BRACKET     2011-2012
  $0 – $2,300 15%
  $2,300 – $5,450 25%
  $5,450 – $8,300 28%
  $8,300 – $11,350 33%
  Over $11,350 35%

 

Other noteworthy items included in the December inflation announcement include the following:

  • Qualified Transportation Fringe: The monthly before tax amount for commuters remains at $230. This includes commuter vehicle transportation, qualified parking and transit passes.
  • Interest on Education Loans: The $2,500 maximum deduction for interest paid on qualified education loans will be phased out for taxpayers with a modified adjusted gross income in excess of $60,000 in 2011 ($120,000 if filing joint). It is completely phased out for those taxpayers with a modified adjusted gross income of $75,000 (or $150,000 for joint filers).
  • Child Tax Credit: The Act signed by the President on December 17th extends the $1,000 child tax credit for two years. The refundable amount is $3,000 for 2011.
  • Hope Scholarship/Lifetime Learning Credit: Under the American Opportunity Tax Credit, the maximum Hope Scholarship Credit is $2,500 (the amount equal to 100% of qualified tuition and related expenses up to $2,000 plus an additional 25% of those expenses which exceed $2,000). For tax years beginning in 2011, a taxpayer’s modified adjusted gross income in excess of $80,000 ($160,000 if joint) is used to determine the phase out reduction of the Hope Scholarship Credit. For tax years beginning in 2011, a taxpayer’s modified adjusted gross income in excess of $51,000 ($102,000 if joint) is used to determine the phase out reduction of the Lifetime Learning Credit.

 

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