I‘ve written about the Bush tax cuts several times on this site, mainly wondering if they'll be renewed, and how if they're not renewed the tax rates will go up for everyone who pays taxes (not just the wealthy).
Today I thought I'd take a look at what exactly will happen on January 1st if they're not renewed.
Immediate Impact Of Tax Cuts Expiring
If the Bush tax cuts aren't renewed for everyone, there will be several immediate impacts.
Tax Rates Go Up
the tax rates will go up for everyone who pays taxes. According to CNNMoney.com, you could see less in your paycheck as early as your first paycheck of the year!
If the tax cuts do expire and tax rates go up, you may notice the difference in your wallet as early as January, when your employer starts to withhold more taxes from your paycheck. The Tax Policy Center estimates that a married couple with two kids under 13 and a household income of roughly $75,000 could end up paying about $2,600 more in federal income taxes next year than they would if the tax cuts were extended.
While both parties have stated that they want to renew at least some of the tax cuts, nobody has made it happen yet. The parties disagree as to which of the cuts to extend, and even within the parties themselves there is disagreement.
So what will the tax rates look like under different scenarios – with all of the tax cuts expiring, or with only some expiring? Here are what the marginal tax rates will look like if the Bush tax cuts are allowed to expire either for everyone, or just for some.
|If No Tax Cuts Are Renewed|
|2011 Tax Bracket||Single||Married Filing Jointly|
|15% Bracket||$0 - $8,500||$0 - $17,000|
|15% Bracket||$8,500 - $34,550||$17,000 - $57,700|
|28% Bracket||$34,550- $83,700||$57,700 - $139,500|
|31% Bracket||$83,700 - $174,650||$139,500 - $212,600|
|36% Bracket||$174,650 - $379,650||$212,600 - $379,650|
|If Tax Cuts Are Renewed For Some (Obama's Plan)|
|2011 Tax Brackets||Single||Married Filing Jointly|
|10% Bracket||$0 - $8,425||$0 - $16,850|
|15% Bracket||$8,426 - $34,200||$16,851 - $68,400|
|25% Bracket||$34,201 - $82,850||$68,401 - $138,050|
|28% Bracket||$82,851 - $192,000||$138,051 - $232,950|
|36% Bracket||$192,001 - $375,700||$232,951 - $375,700|
|Current 2010 Tax Rates|
|2010 Tax Bracket||Single||Married Filing Jointly|
|10% Bracket||$0 - $8,375||$0 - $16,750|
|15% Bracket||$8,375 - $34,000||$16,750 - $68,000|
|25% Bracket||$34,000 - $82,400||$68,000 - $137,300|
|28% Bracket||$82,400 - $171,850||$137,300 - $209,250|
|33% Bracket||$171,850 - $373,650||$209,250 - $373,650|
Child Tax Credit
Another provision of the Bush tax cuts that will expire is that child tax credit. It will drop from $1,000 to $500 per child if it isn't renewed. There will also be tougher eligibility standards in order to claim this credit.
Capital Gains/Qualified Dividends
With the tax cuts expiring, the long term capital gains and qualitified dividend tax rates would increase from a maximum of 15%. Capital gains would then be taxed at a maximum of 20%, and qualified dividends would be taxed at the regular rate of the tax filer, which could be as high as 39.6%.
The provision that gave a married couple filing joint a standard deduction that was twice that of a single person would expire if not renewed.
Return of Phase-Out Rule for Itemized Deductions
The Bush tax cuts put in place a rule that allowed higher income individuals to itemize deductions. If the cuts expire, the phase-out rule could eliminate up to 80% of a higher-income individual's itemized deductions for mortgage interest, state and local taxes, and charitable donations. If you itemize and have adjusted gross income above about $170,000 ($85,000 if you use married filing separate status), this phase-out rule will once again take effect.
In the end, if the tax cuts and side provisions aren't renewed and extended, we'll all be seeing an increase in our taxes next year. If only some of them are renewed, some of us will. Here's to hoping that congress and the administration can put aside their differences and get something done.
What are your thoughts on the Bush tax cuts, and whether they should expire? Would you be willing to pay more if they don't get something done? Do you think they will? Tell us your thoughts in the comments.