IRS Announces Mileage Rates for 2011

The IRS has released the mileage rates for 2011.  The regular mileage rate increased by 1 cent; the rate for medical mileage increase by 2.5 cents; and the rate for charitable mileage remains the same as in 2010.

• Mileage rate for 2011:  51 cents per mile (up 1 cent from 2010)
• Medical mileage rate:  19 cents per mile (up 2.5 cents from 2010)
• Charitable mileage rate:  14 cents per mile (same as 2010)

House Passes Extension of Bush Tax Cuts

The U.S. House of Representatives today passed an extension of the Bush Tax Cuts for the lower and middle classes.  The measure passed 234-188 in the House and now goes to the Senate.  Pundits say the Senate will likely vote the measure down.

Link to a Reuters news article about the House vote.

Making Work Pay Credit Expires - Paychecks Will Decrease

I haven't seen much media coverage of the "Making Work Pay Credit," but this credit expires soon and will cause a lot of people's paychecks to be smaller in 2011.

The Making Work Pay Credit was part of the 2009 economic "stimulus" package and existed in 2009 and 2010, but is set to expire on December 31st.

The credit amounts to $400 per person for most working adults.  People who receive W-2 wages have received the credit bit-by-bit in each paycheck, in the form of lower withholding. 

If Congress does not renew the Making Work Pay Credit, you'll notice that your first paycheck of 2011 will be lower.  The decrease will amount to $33.33 per month per person ($400/12).

President Obama has proposed extending the credit into 2011, but lawmakers have not been receptive to the idea.

(UPDATE:  the tax bill signed into law December 17th, 2010, did not extend the Making Work Pay Credit, but it did provide for a reduction in FICA withholding from paychecks in 2011, which will more than offset the expiration Making Work Pay Credit.)

AMT Could Hit 20% of Taxpayers in 2010

(UPDATE 12/22/10:  The tax bill signed into law on December 17, 2010, does provide an AMT patch that will help millions of Americans avoid the AMT.  Read the story here.)

We are hearing constantly about Congress debating the "Bush Tax Cuts" and whether to extend the tax cuts for only people who earn less than $250,000 a year, or to extend them for all taxpayers.  But there are other tax provisions unrelated to the Bush Tax Cuts that Congress needs to take action on this month -- and in my opinion, the most important of those provisions is the alternative minimum tax (AMT).

If Congress does nothing regarding the AMT, millions upon millions of taxpayers (an estimated 1-in-5) will be hit with this tax, which, when it was enacted in 1969, was only supposed to hit a few extremely wealthy people.  The AMT exemption amount for a married couple will drop from $70,000 in 2009 to just $45,000 in 2010; and from $46,700 in 2009 for single or head of household to $33,750 in 2010. 

The AMT is too complex to go into in one article, but suffice to say that at the very least, Congress MUST extend the 2009 exemption amounts into 2010 or lots of people will be very unhappy when they find out they owe this tax….

Defining the Term "Bush Tax Cuts"

There has been a lot of talk lately about Congress needing to decide on the fate of the "Bush Tax Cuts."  What exactly are people like me referring to when we say "Bush Tax Cuts"?  I'll try to explain a little bit in this article.

The term "Bush Tax Cuts" refers to a host of tax provisions implemented in the early years of the Bush administration.  These provisions are set to expire on December 31, 2010, unless Congress extends them.  If Congress takes no action:

• The top tax rate in 2011 will rise to 39.6% (up from 35% now), and the bottom rate will rise to 15% (up from 10% now).
• The "child tax credit" will be cut in half in 2011, dropping from $1,000 to just $500.
• The so-called "marriage penalty" will return in 2011.
• The long-term capital gains tax rate is set to increase, and the preferential tax treatment of "qualified dividends" will go away.
• The estate tax will return in 2011 at its pre-Bush Tax Cut levels of a $1 million exemption and 55% top rate.

Major Tax Changes Proposed in Debt Commission Report

President Obama's "Debt Commission" released a report today (Wednesday) with recommendations on how to cut the federal deficit.  The Commission says its recomendations would reduce the federal debt by $4 trillion over the next 10 years. The Commission is made up of 6 Republicans, 6 Democrats and 6 others appointed by the President. In order for any of these recommendations to be put before Congress, at least 14 members of the Commission need to approve the plan. The Commission is set to conduct a vote on Friday.

Major changes to the tax code are a part of the plan.  The Commission proposes repealing the alternative minimum tax, creating three tax brackets for individuals (12%, 22% and 28%), and eliminating all itemized deductions (everyone would take a standard deduction, but certain tax credits would be allowed for mortgage interest and charitable contributions).

Corporate taxes would have one flat rate of 28%.

The proposal includes much more than just tax reform.  You can read the entire proposal here, and a CNN article about the proposal here.

U.S. House Will Vote Thursday on Tax Cuts

Democrats in the U.S. House of Representatives say they will try to push through a vote tomorrow (Thursday) on extending the "Bush Tax Cuts" for people who earn $250,000 a year or less.  Republicans seem lukewarm to the idea, though, because they say the tax cuts should be made permanent for all taxpayers.

The Bush Tax Cuts are just one of a number of items lawmakers need to deal with.  We still don't know whether a number of provisions that expired at the end of 2009 will be extended to 2010.

And perhaps most importantly, we don't know whether lawmakers will provide relief to the "alternative minimum tax" (AMT).  Under current provisions, the AMT exemption amounts are reduced dramatically in 2010, and an estimated 1-in-5 Americans will be hit with this tax unless Congress passes legislation to -- at the very least -- retain the 2009 exemption levels.

This article from CNN provides more information about the wrangling going on in the House.