A new revenue procedure carries IRS's official 2011 inflation-adjusted figures for tax provisions that were in limbo until passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act, P.L. 111-312). These include the tax rate brackets, the standard deduction amounts and the phaseout ranges for education credits.
Background. In late October, IRS issued a revenue procedure carrying a listing of official inflation-adjusted tax figures for 2011, but the listing was only partial because of uncertainty, at that point, over whether legislation would be passed extending the Bush-era tax cuts and various other tax breaks (Rev Proc 2010-40, 2010-46 IRB 663). Reacting quickly to passage of the 2010 Tax Relief Act, IRS has now issued a follow-up revenue procedure carrying the 2011 figures for the inflation-adjusted tax figures not covered in Rev Proc 2010-40.
Tax rate tables. Under Sec. 101 of the 2010 Tax Relief Act, the tax rate schedules for individuals will remain at 10%, 15%, 25%, 28%, 33% and 35% for two additional years, through 2012. In addition, the size of the 15% tax bracket for joint filers and qualified surviving spouses will remain at 200% of the 15% tax bracket for individual filers through 2012. Rev Proc 2011-12, carries the official tax rate tables for 2011 for individuals as well as for estates and trusts, and reflects these 2010 Tax Relief Act changes.
Standard deduction. Under Sec. 101 of the 2010 Tax Relief Act, the standard deduction for married taxpayers filing jointly (and qualified surviving spouses) remains at 200% of the standard deduction for single taxpayers for two additional years, through 2012. Rev Proc 2011-12, carries the standard deduction for marrieds for 2011 ($11,600 for joint filers, $5,800 for marrieds filing separately), as well as all of the other standard deduction figures.
Personal exemption amount. Under Rev Proc 2011-12, the personal exemption amount for 2011 will be $3,700.
Observation: Thanks to the 2010 Tax Relief Act, personal exemptions of higher income taxpayers won't be phased out for 2011 or 2012.
Education credit phaseouts. The Code Sec. 25A American opportunity tax credit (AOTC)/Hope scholarship credit was kept in place for 2011 and 2012 by the 2010 Tax Relief Act. The AOTC/Hope credit is equal to 100% of up to $2,000 of qualified higher-education tuition and related expenses (including course materials), plus 25% of the next $2,000 of expenses paid for education furnished to an eligible student in an academic period—i.e., a maximum credit of $2,500 a year for each eligible student. The AOTC/Hope credit phases out ratably if modified adjusted gross income (MAGI) exceeds an inflation-adjusted level. For 2011, under Rev Proc 2011-12, the AOTC/Hope credit phases out ratably for taxpayers with MAGI of $80,000 to $90,000 ($160,000 to $180,000 for joint filers). These phaseout ranges are unchanged from 2010.
Under Code Sec. 25A(a)(2), taxpayers may elect a Lifetime Learning credit equal to 20% of up to $10,000 of qualified tuition and related expenses paid during the tax year. The maximum credit is $2,000. Unlike the American opportunity tax credit (AOTC)/Hope credit, which is available for the qualifying expenses of each qualifying student, the Lifetime Learning credit is available only per taxpayer.
Under Rev Proc 2011-12, for 2011, the Lifetime Learning credit phases out ratably for taxpayers with MAGI of $51,000 to $61,000 ($102,000 to $122,000 for joint filers). For 2010, the Lifetime Learning credit phased out ratably for taxpayers with modified AGI of $50,000 to $60,000 ($100,000 to $120,000 for joint filers).
Observation: The Lifetime Learning credit was not affected by the 2010 Tax Relief Act.
Earned income tax credit (EITC). Rev Proc 2011-12, reflects the 2010 Tax Relief Act's extension for 2011 and 2012 of various liberalized EITC rules. For example, for 2011, the maximum EITC for low- and moderate- income workers and working families rises to $5,751, up from $5,666 in 2010. The maximum income limit for the EITC rises to $49,078, up from $48,362 in 2010. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
Other figures stay the same. Thanks to the 2010 Tax Relief Act:
• The monthly limit on the value of qualified transportation benefits (parking, transit passes, etc.) provided by an employer to its employees will remain at $230 for 2011.
• The up-to-$2,500 above-the-line deduction for interest paid on qualified education loans under Code Sec. 221 will continue to be available for 2011 (and 2012). For 2011, the maximum deduction for interest paid on qualified education loans begins to phase out for taxpayers with MAGI in excess of $60,000 ($120,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income of $75,000 or more ($150,000 or more for joint returns), unchanged from the 2010 phaseout figures. (Rev Proc 2011-12)