Important Tax Changes For 2011

Congress made some very important tax changes that may affect your 2010 taxes filed this year.  Here’s a brief summary of the major changes and things to consider when filing your taxes this year.

Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010

Extensions Through 2010

• Extension of lower income tax rates for all tax payers through 2012 (originally intended to expire at the end of 2010).
• Lower capital gains and dividends rates (0% and 15%)
• Earned income tax credit for families with three or more children
• Payroll Tax Holiday – Employees now pay 4.2% on wages towards Social Security  (10.4% for self employed income)

Small Business Jobs Act of 2010

Passed on September 23, 2010, the highlights of this act include:

• Penalties for not issuing W-2 or 1099-MISC forms – Depending on the tardiness of the filed return, the penalty may be $15, $30, or $50 per return.
• Business owners can deduct the cost of health insurance for themselves or their family in calculating their 2010 self-employment tax.
• An additional first-year depreciation deduction for 50% of the adjusted basis of certain qualified property placed in service after Dec. 31, 2009.

Education Jobs and Medicaid Assistance Act of 2010

• This act appeals the advance payment option for the earned income tax credit (the ability to receive the credit in their paychecks rather than waiting to claim a refund the following year).
• The act also allocated $10 billion to local school districts to prevent the layoff of teachers due to state revenue shortfalls.

Homebuyer Assistance and Improvement Act of 2010

• The extension of the homebuyer tax credit of up to $8,000 for qualified homebuyers entering into an agreement prior to May 1, 2010.  The act extends the close date from July 1, 2010 to October 1, 2010.

Hiring Incentives To Restore Employment (HIRE) Act of 2010

• Employers who hire qualified employees after February 3, 2010 and before January 1, 2011 may qualify for a payroll tax incentive equal to 6.2%, thus making them exempt from Social Security taxes.
• An additional general business tax credit (up to $1,000 per employee) may be available if an employer retained a worker for at least a year.

Healthcare Reform Legislation (2010)

The 2,500 pages of legislation passed was one of the most controversial issues in 2010.  It’s technical language made for a confusing battle between supporters and its opposition.  It was passed in March of 2010 and includes many more provisions than the few highlighted here.

• Limitations on flexible spending accounts, cafeteria plans, and HRAs.
• Extension of dependent coverage – allowing an adult child to be covered under their parent’s plan until the child turns age 26.  The child does not even need to be a dependent on a parent’s tax return.

Have you filed your taxes yet?  Did any of these changes impact how you filed?