- Tax Hacks 2015: 6 Things Sneaky Tax Preparers Won’t Tell You
- Don’t Buy These 7 Things at a Dollar Store
- Will Obamacare Complicate Your Taxes? Not Likely
- Definitely Buy These 15 Things at a Dollar Store
- How to Find Old Online Accounts and Destroy Them
- Ask Stacy: Do I Need a Financial Adviser, or Can I Manage My Money Myself?
Uncle Sam just had his 234th birthday, and one thing he might be expecting from you is a present in the form of higher taxes.
With a ballooning deficit, many Americans are anxious that they will be paying more taxes in 2011 – and many might.
If the U.S. Congress does not vote to keep George W. Bush’s tax cuts in the months ahead, some could end up paying thousands of dollars more next year in federal income taxes. Even low- and middle-income families could find the tax man knocking on their doors. They have been paying historically low amounts.
President Barack Obama has said he favors keeping the Bush tax cuts except for those families earning more than $250,000 and individuals making more than $200,000 a year. But unless Congress acts all the tax rates are automatically scheduled to go higher in 2011, even for the poorest Americans. Already, some Democratic legislators are suggesting that higher taxes on families who make $200,000 a year should at least be considered.
If Congress fails to act and the Bush tax cuts automatically expire, changes would take effect Jan. 1, 2011, with the actual taxes due on April 15, 2012, when tax payers file their income taxes for 2011.
Married couples with children could face the biggest hikes as they would have fewer tax credits to offset their yearly payment to Washington. They will also contend with what everyone else faces – potentially paying a higher percentage of their income to Uncle Sam.
Most Republicans want to keep all the Bush tax cuts enacted in 2001 and 2003. The Heritage Foundation, a conservative think tank, asserts that the cuts did not add as much to the deficit as President Obama and other Democrats say.
But President Obama and many Democrats respond that they are only listening to people’s concerns about the deficit: For the deficit to be reduced, some will have to pay more taxes and it is only fair, they say, that the wealthiest contribute by at least paying what they were paying before the Bush tax cuts.
While some say Congress won’t raise taxes in an election year, the reality is allowing the Bush tax cuts to expire would help reduce the federal deficit. The nonpartisan Congressional Budget Office estimated the federal government would have $2 trillion less in its coffers over 10 years by allowing existing Bush tax rates to remain in effect.
Some top U.S. leaders are now saying the tax cuts to the middle-class can’t go on indefinitely.
House Majority Leader Rep. Steny Hoyer (D-Md.) recently told The Washington Post that the country needs to have a “serious discussion” about the middle-class paying more taxes. But for now he expects Congress to give most families a reprieve in 2011.
Here’s a look at how you could be affected if the Bush tax cuts expire in 2011:
Taxes jump on capital gains.
Capital gains will go up. Lower income tax filers who now aren’t paying long-term capital gains after holding stocks for at least a year are scheduled to pay 10 percent of their profits in 2011. It will go up to 20 percent for all other tax filers. Short-term capital gains will also increase according to a filer’s tax bracket. For example, a family who would be in the 28 percent bracket would pay that instead of the current 25 percent.
Return of the Hated Marriage Penalty Tax.
Many upper middle class married couples would no longer be able to count on the end to the so-called marriage penalty tax. The Bush tax cuts had equalized tax rates so most single and married couples paid the same percentage. For example, a single filer paid 10 percent on up to $8,375 of taxable income and married couples handed over a tenth of income up to $16,700. But if the Bush tax cuts end, that equalizing tax rate goes away as couples make more money .
Kids get more expensive.
Families’ child credits would be cut in half. Families earning $110,000 or less would only enjoy a tax credit of $500 per child instead of the current $1,000. So a family with two children would pay $1,000 more in federal income taxes per year.
Even the poorest might pay.
The bottom 10 percent tax rate will be eliminated if the Bush tax cuts expire. That means after deductions, the lowest tax rate for single filers in 2011 will go up to 15 percent for those earning less than $8,500 or up to $425 more for a single person. For married couples making $17,000 a year the extra taxes could be $850.
One tax rate stays the same.
The 15 percent tax rate, however, would remain the same for single filers earning up to $34,550; for couples the maximum income would be $69,100.
The middle class would pay more.
The 25 percent tax bracket for middle-class filers would jump to 28 percent for those single people earning less than $83,700 or $139,500 for married couples.
The upper middle class really pays.
The rate would go up to 31 percent for single filers making up to $174,650 or $212,600 for couples if the Bush tax rates expire.
The wealthiest are hit the hardest.
Both single filers and couples making up to $379,650 will see their tax rate jump from 33 to 36 percent. Those who make more than $379,650 will see their rate jump to 39.6 percent. President Obama has long favored the higher rate, arguing the wealthiest should help the less fortunate. But Republicans say the higher tax will hurt the economy.
Money Talks News also has other coverage on other possible tax changes: