Income Tax Changes 2010

Income Tax Changes 2010

TaxesWhat better way to start the New Year then with a review of the income tax changes for 2010? Due to the economic recession, there were not a lot of changes to the tax provisions in 2010. That being said, we will outline changes to Social Security, standard deductions, exemptions, mileage rate deductions, earned income credits, Hope and Lifetime Learning tax credits, as well as changes to retirement savings accounts such as 401k plans, IRAs, and Roth plans.

Federal Income Tax Filing Deadline

The tax filing deadline for the tax year 2009 is April 15, 2010 - which falls on a Thursday. In the remainder of this publication, we're going to be discussing the changes that became effective in the tax year 2010, which will become part of your income tax filing in 2011.
Social Security and Medicare

For 2010, the Medicare tax will remain at 1.45% while Social Security remains at 6.20%. The wage limit, or Social Security maximum, remains at $106,800 - the same value as was in place during 2009. The Cost of Living Adjustment (COLA) was 0.0% - a direct reflection of the slow growth we're experiencing in the U.S. economy.

Standard Deductions in 2010

According to the IRS, around two out of every three taxpayers claim the standard deduction on their income tax returns. In 2010, there was only one change to the standard deductions - the head of household standard deduction went up by $50. The deduction for all other taxpayers remained the same. The standard deductions that apply in 2010 include:

* Single - $5,700
* Married filing separately - $5,700
* Head of household - $8,400
* Married taxpayers filing jointly / qualifying widow(er)s - $11,400

Exemption Values

The amount you can deduct for each exemption you claim on your federal income taxes in 2010 did not increase from 2009. The 2010 value of $3,650 is the same value of an exemption in 2009. Here again, we saw no increase in 2010 and only a $250 increase over the last three years.

Mileage Deduction Rates

Studies funded by the IRS demonstrate that it's less expensive to drive a car in 2010. And that means the standard mileage deduction rates are decreasing. The following table outlines the mileage deduction rates for the tax year 2010:

Mileage Deduction Rates 2010

Category Rate
Business Miles 50.0 cents per mile
Charitable Services 14.0 cents per mile
Medical Travel 16.5 cents per mile
2010 Increase to Earned Income Credit

The earned income credit applies to working taxpayers that have earned income that falls below certain thresholds. The qualification threshold depends on the number of persons in each family. The thresholds in 2010 to qualify for this credit include:

* No Children - earnings must be less than $13,460 or $18,470 if married filing jointly.
* One Child - earnings must be less than $35,535 or $40,545 if married filing jointly.
* Two Children - earnings must be less than $40,363 or $45,373 if married filing jointly.
* Three or More Children - earnings must be less than $43,352 or $48,362 if married filing jointly.

The credits themselves have also increase in 2010, with the maximum credits that can be received as indicated below:

* No Children - $457
* One Child - $3,050
* Two Children - $5,036
* Three or More Children - $5,666