Basic LimitsThe 2010 Tax Relief Act has modified and extended for one year (through 2011) the tax credit available to homeowners for installing cee:tain emergencies property in their principal residences. The maximum credit is $500, and no more than $200 of that amount can be for exterior windows (including skylights). The $500 maximum credit is reduced by amounts previously claimed for tax years ending after 2005.
The 2011 credit is available for:
- 10% of the cost of qualified building envelope components, including insulation materials or systems, exterior windows, skylights, exterior doors, and metal roofs
- "residential property energy expenditures" Resjdential property energy expenditures are limited to:
- $50 for each advanced main air circulating fan
- $150 for each qualified natural gas, propane, or oil furnace or hot-water boiler
- $300 for each electric heat pump water heater; electric heat pump; central air conditioner, biomass stove; or natural gas, propane, or oil water heater
Social Security Tax CutWorkers and self-employed individuals are enjoying a reduction in the Social Security taxes they owe on their wages and self-employment income in 2011. Under the 2010 Tax Relief Act, two percentage points have been shaved off Social Security tax rates in an effort to put more money in taxpayers' wallets and stimulate the economy.
How Much Is It Worth?At most, the rate reductions mean tax savings of $2,136 for an individual (2% of $106,800, the maximum amount subject to Social Security tax in 2011) and t\vice that amount ($4,272) for a married couple who both receive the maximum benefit from the rate reduction. The Medicare payroll tax (imposed at a rate of 1.45% for employees and 2.9% for self-employed individuals) continues to apply to all earnings.
Making PlansAlthough lawmakers may hope that America's workers will go out and spend their tax windfalls, there's something to be said for using the extra money to contribute to more lasting flinancial goals. For example, taxpayers who are saving for retirement may fUld it relatively painless to increase their retirement plan or individual retirement account contributions by the amount saved in payroll tax. Or the extra money in each paycheck might give an extra cash boost to taxpayers who are trying to pay ofT their credit card balances or reduce other outstanding debt.
No Break for EmployersCongress did 1101 extend the Social Security payroll tax cut to employers. They continue to be liable for their share of the Social Security tax at a rate of 6.2% on the first $106,800 of an employee's earnings. The IRS has announced the optional standard mileage rates for 2011. The rate is 51 cents per mile for calculating the deductible costs of operating an automobile for business purposes. The rate to be used for computing the medical or moving expense deduction is 19 cents per mile, and the rate for operating a car in connection with charitable activities is 14 cents per mile.
2011 Deferral LimitsThe dollar limit on employee salary deferrals to a 4011k). 4031b). or 457 plan is $16,500 for 2011, unchanged from 2010. If a plan allows, employees age 50 or over may make additional catch-up contributions of up to $5,500. Plans may have lower limits.
RMD ReminderTraditional IRA owners and retirement plan participants who turned 701/2, in 2010 have until April " 2011, to take their first required minimum distribution IRMD). A second RMD If or 2011) must be taken by December 31, 2011. Failure to withdraw an RMD by the applicable deadline may result in a 50% tax penalty on the required amount not withdrawn.
The general information in this publication is not intended to be nor should it be treated as tax, legal, or accounting advice, Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purpose of avoiding tax penalties.March 2011 Page 2