February 14 The IRS Will Start Processing Returns for Taxpayers Who Faced Filing Delays
The end is in sight for taxpayers who faced filing delays due to the round of tax extenders and Tax Relief Act of 2010. The IRS is ready to start accepting those returns February 14. The delays affected those who itemize deductions and file Schedule A and these forms:
· Form 8917 Tuition and Fees Deduction
· Form 4684 Casualties and Thefts
The 2010 Tax Relief Act Will Affect Consumers and Businesses
The 2010 Tax Relief Act ushers in a package of over 800 billion dollars of extended tax cuts that will benefit all Americans. All tax rates approved under President George Bush and many of the “Bush era tax cuts” are extended for 2 more years. Here are the major highlights:
TAX RATES EXTENDED: Extends the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) tax rates for 2 years. Without passage of the Tax Relief Act the EGTRRA tax rates of 10%, 15%, 25%, 28%, 33% and 35% would have gone back to 15%, 28%, 31%, 36% and 39.6% starting January 1, 2011.
AMT “PATCH”: For average American families, the most immediate effect is a pay increase from the Social Security cuts realized on the first paycheck of 2011, rather than a $3,000-$5,000 increase due to a an Alternative Minimum tax patch that was set to expire. With the additional patch on the Alternative Minimum Tax, an estimated additional 21 million households would have been subject to the higher taxes.
Example: A taxpayer filing single making $50,000 with $1,500 of withholding, 2 children under 13 with $6,000 of dependent care expenses, using the standard deduction. Without the patch, they would have a refund of $43 and have AMT of $469. With the patch they get a refund of $512.
The 2010 Tax Relief Act provided another “patch” for the Alternative Minimum Tax (AMT). There’s Alternative Minimum Tax relief in store again and the AMT exemption amount has increased to $47,450 for individuals and $72,450 for joint filers. Taxpayers can also deduct nonrefundable personal credits in 2010 such as the child tax credit to reduce their AMT liability. Without the patch the AMT exemption amount would have decreased to $33,750 for individuals and $45,000 for joint filers.
CUT IN SOCIAL SECURITY TAXES: A cut in Social Security taxes withheld from workers’ paychecks will mean an immediate increase in take home pay for millions of Americans. Social security taxes (FICA) will be cut by 2 percentage points for 2011 so employees will pay 4.2 percent of wages earned to Social Security instead of 6.2 percent. What this means is a taxpayer earning $50,000 a year this will have an extra $1,000 in their pocket over the year.
For every $10,000 of wages, the yearly increase in the paycheck will be $200.
For every $5,000 of wages, the yearly increase in the paycheck will be $100.
For every $1,000 of wages, the yearly increase in the paycheck will be $20.
UNEMPLOYMENT INSURANCE BENEFITS EXTENDED: Unemployment insurance benefits are extended through 2011 for those out of work longer than 26 weeks, but not longer than 99 weeks.
BENEFITS FOR FAMILIES AND EDUCATION: Extends enhancements made to the Earned Income Tax Credit, Child Tax Credit, and the Hope (now called American Opportunity Tax Credit) credit adopted in the 2009 American Recovery and Reinvestment Act (ARRA) that would have expired December 31, 2010.
The American Opportunity Tax Credit expanded the Hope credit to be available for the first four years of post secondary education. It has increased up to $2,500 (first $2,000 of tuition and 25% of the second $2,000) and is now up to 40% refundable. This due to expire after December 31, 2010, and now has been extended for two years.
The Tax Relief Act extends the repeal of itemized deduction and personal exemption phase-outs for 2 years. The itemized deductions were projected to have begun to phase-out at $169,550 ($84,775 if MFS) and the personal exemptions were projected to start phase-out for AGIs above $169,550 ($254,350 for MFJ).
The temporary increase in the Earned Income Tax Credit (EITC) for 2009 will continue through 2012. Prior to 2009, the credit percentage for the EITC for a taxpayer with two or more qualifying children was 40 percent of the first $12,570 of earned income. The new law increases the percentage to 45 percent of the first $12,570 of earned income for taxpayers with three or more qualifying children. The EITC phase-out range has also been adjusted upward by $1,880 for joint filers to eliminate any marriage penalty.
Without action, the Child Tax Credit (CTC) would have decreased from $1,000 per qualifying child to $500 per qualifying child in 2011. The Tax Relief Act also continued to allow the CTC to be used against AMT. Additionally, the Tax Relief Act continues the refundable portion of CTC (additional CTC) threshold to be 15% of the earned income above $3,000 for 2 more years. Without action the threshold would have returned to $10,000.
There’s a change in the inheritance tax. The first $5 million of an estate can pass tax-free to heirs. Anything over that will be taxed at 35%.
The individual “tax extenders were extended again for 2010 and 2011. These are the state and local sales tax deduction, higher education tuition and fees deduction, teacher’s classroom expense deduction and charitable contribution of IRA proceeds.
Current capital gains tax rates of 0% (for those in the 10 and 15% tax brackets) and 15% will remain in place for two more years. Without action, the rates would have been 10% (for those in the 15% tax bracket) and 20% for 2011 and beyond. Additionally qualified dividends would no longer be eligible for capital gains treatment and would be taxed at the taxpayers ordinary tax rate (15%, 28%, 31%, 36% and 39.6%).
BUSINESS BENEFITS: Businesses will be able to write off 100% of their capital investments for tax purposes for items placed in service after September 8, 2010 through December 31, 2011, up from the 50% bonus depreciation. The 2010 Tax Relief Act also makes the 50% bonus depreciation available for qualified property placed in service after December 31, 2011 and before January 1, 2013. If a taxpayer purchased a qualified property after September 8, 2010, they will be able to claim 100% of the cost on their business return.