$832 Tax Increase Coming in 2011 For A Single Person Earning $9 Per Hour

Let’s continue our look at 2011 scheduled income tax changes by considering this single person:

·         Quincy works full-time at a job at about $9 per hour, earning a $18,000 per year.  He lives with a couple roommates and shares living expenses with them.  For taxes he files single with no dependents.

·         His average weekly paycheck is $287.67. (Gross pay $346.15 less $20 federal withholding and $38.48 in other withholding taxes)

·         He files a 1040-EZ  tax return each year because his only source of income is the wages from his job and he does not have enough deductions to itemize.

In 2010, Quincy’s tax return could be summarized as follows:

·         Adjusted Gross Income:                                $18,000

·         Standard Deduction                                       $  5,700

·         Personal Exemptions (1 @ $3,650)              $  3,650

·         Taxable Income                                               $  8,650

·         Tax before credits                                          $      865 (all taxable at 10%)

·         Making Work Pay Credit                             $     400 (Passed in 2009 for 2009 and 2010)

·         Federal Tax After Credits                            $     465 (assuming no federal income tax withholding)

·         Federal Tax Withheld From Pay             $ 1,040 ($20 per week times 52 weeks)

·         Federal Tax Refund                                        $     575

Here’s what will change for Quincy in 2011, unless Congress makes a last-minute modification (very possible, be sure to check back here to see):

·         The 10% bracket is disappearing.  All of Quincy’s taxable income will be taxed at 15%.

·         There is a current proposal in Congress to extend the Making Work Pay Credit to 2011, but as of now it has not yet been voted on.

With these changes, here is what this Quincy’s tax return summary will look like in 2011:

·         Adjusted Gross Income:                               $18,000

·         Standard Deduction:                                     $  5,700

·         Personal Exemptions (1 @ $3,650)            $   3,650

·         Taxable Income                                               $   8,650

·         Tax before credits                                          $   1,297 (all taxable at 15%)

·         Making Work Pay Credit                             $  -  0  -

·         Federal Tax After Credits                            $  1,297

·         Federal Tax Withheld From Pay             $ 1,040 ($20 per week times 52 weeks)

·         Federal Tax Owed With Return                $     257

Quincy, who is used to having to receiving a $575 refund when he files his tax return, will find out he owes $257 instead – a net $832 increase in his tax liability (over 4½ percent of his income).

Letting the 2001-2003 tax cuts expire is going to affect everyone. 

Even someone earning only $9 per hour, like Quincy.

Get Your Tax or Financial Questions Answered In A Future Blog Post

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Important Note!   The information in this article is intended to inform you of some of the financial opportunities provided in the tax laws or elsewhere.  These laws are very complex and thus this article is not intended to give you specific advice for your personal situation.  If you need such advice, please contact a qualified professional.

© 2010, Doug Beecher, MBA, CPA, all rights reserved. This article, either as a whole or in part, may not be reproduced or transmitted in any form without the prior written permission of the copyright holder. When such permission is granted, the user must state that the material was used by permission of the copyright holder.