How The New Tax Law Will Affect You

The average taxpayer will save $3000 in 2011 because of the new tax law.

But many families will be able to save much more by taking advantage of tax breaks for being married, having children, paying for child care, going to college or investing in securities. There are even tax breaks for paying local sales taxes and using mass transit, and a new Social Security tax cut for nearly every worker who earns a wage.

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The law extends most of the tax cuts for two years, including lower rates for the rich, the middle class and the working poor, a $1,000-per-child tax credit, tax breaks for college students and lower taxes on capital gains and dividends. A new one-year tax cut will reduce most workers’ Social Security payroll taxes by nearly a third next year, from 6.2 percent to 4.2 percent.

A mishmash of other tax cuts will be extended through next year. They include deductions for student loans and local sales taxes, and a tax break for using mass transit. The alternative minimum tax will be patched, sparing more than 20 million middle-income families from increases averaging $3,900 in 2010 and 2011.

The $858 billion package also includes $57 billion in renewed jobless benefits for the long-term unemployed.

A few scenarios:

• A single taxpayer making $50,000 a year who rents an apartment and pays $3,500 in college tuition and fees would save $2,280 in income taxes and $1,000 in Social Security taxes — a total of $3,280.

• A married couple with two young children, some modest investments and combined wages of $100,000, would save $6,256 in income taxes and $2,000 in Social Security taxes — a total of more than $8,200.

• A married couple with a child in high school and another in college, combined wages of $170,000 and larger investments would save nearly $7,800 in income taxes and $3,400 in Social Security taxes — a combined savings of nearly $11,200.

By: Alan

Alan Colmes is the publisher of Liberaland.