Summary of Tax Changes for 2011

Summary of Tax Changes for 2011

president-obama-signing

The end of the 2010 marked the sunset of certain tax cuts found in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA ) commonly referred to as the Bush Tax Cuts.   Well, last week was as crazy of a week as you get in the tax world.  The recently enacted Unemployment Insurance Reauthorization and Job Creation act of 2010 extends a lot of those provisions for the next 2 years.  This post highlights just some of those provisions.

Unemployment Insurance Reauthorization and Job Creation Act of 2010

Again, these are just some of the extensions created until 2012 by the Unemployment Insurance Reauthorization and Job Creation Act of 2010 signed in to law by Obama:

  • Extension of the 10% Bracket as the lowest bracket – This was supposed to go up to 15%
  • Extension of the 25%, 28%, 33% and 35% brackets through 2012 – this was supposed to go up a couple percentage points for each bracket
  • Temporary Repeal of the Personal Exemption Phase-Out
  • Temporary Repeal of itemized deduction limitations
  • Dividend rates for those under the 25% bracket is 0% and 15% for those above the 25% rate – Aren’t I glad I started that dividend income fund!
  • Capital Gains rates are the same as dividend rates (i.e. 0% if you are in the 25% or lower brackets)
  • Extension of certain Child Tax Credits
  • Temporarily extends the marriage penalty relief
  • Extends credits afforded people with child care expenses from $2,400 for one child and $4,800 for two or more children to $3,000 and $6,000, respectively.
  • Extends credits afforded to adopting parents
  • Extends Student Loan Interest Deductions – While we all know that Student Loans are NOT always deductible this extension keeps the current system in tact (i.e. if you make less than a certain amoutn you can deduct up to $2,500 in interest payments).
  • Provides AMT relief – This is done EVERY year I wish they would just solve the problem already
  • Extension of Unemployment Insurance
  • Temporary Employee Payroll Tax Cut – I know I get pissed every time I look at my paycheck and how much is taken out I get pissed, but now they have decided to give me a little bit of reprieve providing that only 4.2% of my salary will go to FICA instead of 6.2%.  While everyone knows I would love to opt out of the ponzi scheme called Social Security – this provision is just idiotic.   We have fledingly Social Security System, so you know what I am going to do? Cut funding to it! Ridiculous.
  • Some Credits for renewable energy initiatives.
  • Extension of $250 above the line tax deductions for Teachers.  What?! Another reason to get pissed at teachers.  I get it but as an employee you shouldn’t be getting these credits.
  • Qualified Charitable  Distributions form an IRA (up to the same $100K)
  • Some interesting Business Development ones like “accelerated depreciation for business property on an Indian reservation” and credits for production costs on US Film and TV productions.
  • Mortgage Insurance Deductible as Interest – Apparently, the mortgage tax deduction is phased down 10% for each $1,000 by which the taxpayer’s AGI exceeds $100K (so the deduction would be gone for someone with a $110K income) – the norm is extended and this provision is frozen to allow for the deduction.

I was shocked to read some of the credits/deductions that were being phased out and then extended.  I was shocked because I didn’t know they were set to phase out!  When the cuts were enacted I was a 20 year old in college I didn’t exactly pay attention to this world.

The Estate Taxes Under the Unemployment Insurance Reauthorization and Job Creation Act of 2010

As you may or may not know I live in the estate planning world, and I was shocked when I read these provisions.

  • Increase the amount that can be left to a Non-Spousal U.S. Citizen Increased from $3.5 million to $5mil!
  • Decrease the rate from 55% to 35% for those assets over the $5mil
  • Portability of unused Exemption – This provision shocked me the most. Each Resident of the United States receives that $5mil and all you had to do to get $10,000,000 is prepare a pretty standard Will for those that are worth that kind of money (either a Credit Shelter Will or Disclaimer Will), but now they don’t even have to do that since the surviving spouse can just use the predeceased spouse’s exemption!

The full summary can be found at The United State Senate Committee on Finance Legislation’s Website.

Are you surprised by any of the extensions/changes?

17 Responses to Summary of Tax Changes for 2011

  1. I’m interested in seeing how the portability of the exemption is going to be implemented. I’ve read that the decedent’s personal representative can elect. In most states a surviving spouse isn’t automatically appointed PR. So, it will require the surviving spouse to file in Probate court. Not a good thing.

  2. Thanks for the recap! FYI, the reason teachers receive that credit is I spend money out my pocket and have no chance for reimbursement. When I was a private sector employee, I was reimbursed for anything I spent including mileage.

    • Your deduction as a private sector employee was NOT for anything you spent. Only non-reimbursed work required expenses are deductible. In fact anything you could deduct as a private sector employee is also deductible as a gov’t employee.

  3. Great summary. Imagine a day where the tax code is simple enough we don’t need annual lists like this to keep track of what’s what?

  4. Do you know if the provision for executors to elect either 2010 or 2011 estate tax rules for 2010 decedents was included? I read in the WSJ a week or 2 ago it was pending but haven’t heard since then.

  5. Thanks for the great summary! It’s a lot to digest all at once!

    I hate the “marriage penalty”, they should make the marriage penalty “correction” permanent!

  6. I have a quick question – since FICA is now at 4.2% for 2011, if someone were to make 50,000 per year, do they take home an extra $1,000 or is the $1,000 taxable income so the amount will be taxed based on the $50,000 income bracket and as a result they will receive less than the $1,000?

    • Its a 2% reduction, so if you make 50,000 I personally thought the max benefit was $250 for the year. But, according to online websites you are correct you should save $1000 in taxes paid. (If paid bi-weekly about $42)

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