What 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.
- No Children - $457
- One Child - $3,050
- Two Children - $5,036
- Three or More Children - $5,666
Lifetime Learning and Hope Credits
In 2010, tax law changes also apply to the Hope Credit. The maximum Hope Credit, available for the first two years of post-secondary education, has increased to $2,500. This includes 100% of qualifying tuition and related expense not in excess of $2,000 plus 25% of those expenses that do not exceed $4,000.In 2010, the taxpayer's modified adjusted gross income will be used to determine the reduction in the amount of the Hope Scholarship and Lifetime Learning Credits. Credit reductions start for taxpayers with an AGI in excess of $80,000, or $160,000 for those filing joint returns for the Hope Credit. The threshold for the Lifetime Learning Credit remains at $50,000, or $100,000 for those filing joint returns in 2010.
Contributions to Retirement Accounts
There was not a lot of good news in 2010 for those individuals looking to increase the rate of savings into their retirement accounts. Contribution limits for 401k as well as 403b plans remained the same in 2010 at $16,500. Catch up contributions also remained at $5,500 in 2010. Contribution limits to SIMPLE retirement plans also remained at $11,500, as did the catch up contribution limit of $2,500.The income limits for those willing to contribute to traditional IRAs as well as Roth IRA plans increased modestly in 2010. The income phase-out threshold for Roth IRAs now starts at $167,000 for those filing joint returns - an increase of $1,000. There was no change for taxpayers filing as head of household or single.
Finally, if you're covered by a retirement plan at work and you are considering contributing to a tax-deductible traditional IRA, then the 2010 income phase-out limits start at $89,000 for joint filers (same as 2009), and increases to $56,000 for those with a filing status of single or head of household.
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