Summary: In a flurry of activity, President Obama signed the tax bill that was highly debated by all parties involved. There were some good items left for consumers, some altered and some removed. Millions of consumers will not have to worry about higher taxes for 2011. Let's get to the high points on what it can mean for you.
More take home pay.
Normally Social Security and Medicare deductions are taken out of paychecks at a 6.2% rate. For the next year, that reduction will be 4.2%. This will impact 150 million workers.
The change will save a worker with annual income of $40,000 almost $800 a year. An employee earning $70,000 in income will save almost $1,400.
Without the new tax provisions, this 2% change would not have come about. What was left out was a huge tax increase had the Bush era tax cuts not been renewed
Energy Improvement Incentives Altered.
There are still incentives to make energy-efficient improvements to your home. The new tax provisions scales back 2010's 30% credit. Homeowners are due a 10% credit which caps at $1500 if they add insulation or energy-efficient windows or certain roofs.
Mortgage Insurance Premium Deductions
The tax deduction for homeowners who pay mortgage insurance premiums will be extended fro one more year. Homebuyers who put less than 20% down on a home loan generally have to buy mortgage insurance which protects the lender from defaults.
All In The FamilyThe $1,000 per child tax credit is valid until the end of 2012. It was supposed to be reduced in 2011 to $500 per child. The value of the credit diminishes after adjusted gross income reaches $75,000 and $110,000 for married couples.
A credit of up to $3,000 for dependent care for children under 13 was also extended. For children that are in college, the "American Opportunity Credit" can mean a $2,500 break(salary of $90,000 or less.)
TAX FILING DATES TO CHANGE:
WASHINGTON - Following last week's tax law changes, the Internal Revenue Service announced today the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.
The start of the 2011 filing season will begin in January for the majority of taxpayers. However, last week's changes in the law mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17.
People claiming any of these three items - involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A - will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.
"The majority of taxpayers will be able to fill out their tax returns and file them as they normally do," said IRS Commissioner Doug Shulman. "We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season."
The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.
The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns.
Taxpayers will need to wait to file if they are within any of the following three categories:
- Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.
- Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students - covering up to $4,000 of tuition and fees paid to a post-secondary institution - is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.
- Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.
The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds. Those who use tax-preparation software can easily download updates from their software provider. The IRS Free File program also will be updated.
As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.
Updated information will be posted on IRS.gov. This will include an updated copy of Schedule A as well as updated state and local sales tax tables. Several other forms used by relatively few taxpayers are also affected by the recent changes, and more details are available on IRS.gov.
In addition, the IRS reminds employers about the new withholding tables released Friday for 2011. Employers should implement the 2011 withholding tables as soon as possible, but not later than Jan. 31, 2011. The IRS also reminds employers that Publication 15, (Circular E), Employer's Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov before year's end.