2011 Tax Changes

Social Security and Medicare

For 2011, the Medicare Tax will remain at 1.45%.  On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act, which lowered the employee contribution to Social Security from 6.20% to 4.20% in 2011.  For the third consecutive year, the wage limit, or Social Security maximum, will be $106,800.  The Cost of Living Adjustment (COLA) was 0.0% again in 2011, a direct reflection of the U.S. economy's slow growth rate.

Standard Deductions in 2011

According to the IRS, around two out of every three taxpayers claim the standard deduction on their income tax returns. In 2011, there was a change to the standard deduction amounts for all individual taxpayers.  The standard deductions that apply in 2011 include:

• Single - $5,800, an increase of $100
• Married Filing Separately - $5,800, an increase of $100
• Head of Household - $8,500, an increase of $100
• Married Taxpayers Filing Jointly / Qualifying Widow(er)s  - $11,600, an increase of $200

Exemption Values

The amount you can deduct for each exemption you claim on your federal income taxes in 2011 increased slightly from 2010.  The 2011 value of $3,700 represents a $50 increase over the 2010 amount.

Mileage Deduction Rates

Purpose	Rates 1/1 through 6/30/11	Rates 7/1 through 12/31/11
Business	51	55.5
Medical/Moving	19	23.5
Charitable	14	14

 2011 Increase to Earned Income Credit

The earned income credit applies to working taxpayers that have earned income that falls below certain thresholds.  The qualification threshold depends on the number of persons in each family.  The thresholds in 2011 to qualify for this credit include:

• No Children - earnings must be less than $13,660 or $18,740 if married filing jointly.
• One Child - earnings must be less than $36,052 or $41,132 if married filing jointly.
• Two Children - earnings must be less than $40,964 or $46,044 if married filing jointly.
• Three or More Children - earnings must be less than $43,998 or $49,078 if married filing jointly.

The credits themselves have also increased in 2011, with the maximum credits that can be received as indicated below:

• No Children - $464
• One Child - $3,094
• Two Children - $5,112
• Three or More Children - $5,751

American Opportunity, Lifetime Learning, and Hope Credits

In 2011, there was no change to the Hope Credit.  The maximum Hope Credit, available for the first two years of post-secondary education, remains at $2,500.  This includes 100% of qualifying tuition and related expenses not in excess of $2,000, plus 25% of those expenses that do not exceed $4,000.

In 2011, the taxpayer's modified adjusted gross income will be used to determine the reduction in the amount of the Hope Scholarship and Lifetime Learning Credit.  Credit reductions start for taxpayers with an AGI in excess of $80,000, or $160,000 for those filing joint returns for the Hope Credit.  The American Opportunity Tax Credit is not available in 2011, as this tax credit only applied to the years 2009 and 2010.  The threshold for the Lifetime Learning Credit increases to $51,000 or $102,000 for those filing joint returns in 2011

2011 Energy Tax Credit Details:

• The old generous credit titled the 2009-2010 American Recovery and Reinvestment Act (ARRA) – was allowed to expire and was not renewed.
• The new energy efficient tax credit is only a 10% credit, up to a maximum of $500.  The prior cap had been up to $1500, which will expire on Dec 31, 2010.
• Of that, only $200 for EnergyStar windows can be applied.
• Furnaces are only allowed to get a $200 credit and they must now be 95% efficient, more stringent than the 90% requirement from 2009-2010.
• Wood heating systems are eligible for a max $300 credit.
• To reiterate, of the various programs you may take advantage of, the cap is $500 total IF you haven’t taken advantage of the credit previously.
• Anyone that took advantage of the prior tax credits cannot utilize the credit in 2011 (no double-dipping).