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|New Tax Law: What it Means for You|
|Written by The Associated Press|
|Thursday, 23 December 2010 03:23|
The new tax law signed by President Barack Obama will spare millions of Americans from a big tax increase on Jan. 1. It also includes a new cut in Social Security payroll taxes next year.
A look at how typical taxpayers will fare in 2011:
Taxpayer: A single person with no children, making $50,000 a year in wages. The taxpayer rents an apartment and pays $3,500 in college expenses.
Tax bill without the law: $9,255.
Tax bill with the law: $5,975.
Why: Income taxes would be lower because of lower tax rates and a more generous tax credit that helps students pay for college. Social Security taxes would be cut by nearly a third.
Taxpayers: A married couple with two young children and combined wages of $100,000. The couple also made $2,000 in qualified dividends and paid $7,400 in child care expenses.
Tax bill without the law: $18,576.
Tax bill with the law: $10,320. Savings: $8,256.
Why: Income taxes would be lower because of the lower rates, a $1,000-per-child tax credit and a $1,200 tax credit for child care expenses. Dividend income would be tax-free at their income level. Wealthier investors would pay a top tax rate of 15 percent on dividends.
The couple would be spared from paying the alternative minimum tax and would save $2,000 because of lower Social Security payroll taxes.
Taxpayers: A married couple with a child in high school and another in college, with combined wages of $170,000. The couple also made $4,000 in qualified dividends and $5,000 in capital gains. They paid $16,000 in college expenses and had a total of $35,900 in itemized deductions from state and local income taxes, property taxes, mortgage interest and charitable contributions.
Tax bill without the law: $42,513. Tax bill with the law: $31,331. Savings: $11,182.
Why: Income taxes would be lower because of the lower rates and more generous itemized deductions for people with higher incomes.
Dividends and capital gains would be taxed at 15 percent, instead of higher rates that would have taken effect without the new law. At their income level, the couple wouldn't qualify for the child tax credit and would get only $125 from the education tax credit. However, they would save more than $3,600 because they would be largely spared from the AMT.
Source: The Tax Institute at H&R Block. Note: Tax bills include federal income tax and Social Security payroll taxes.
|Last Updated on Tuesday, 28 December 2010 00:33|