IRS Announces 2011 Air Transportation Tax Rates

The Internal Revenue Service today announced the 2011 inflation adjustments to the excise taxes on air transportation.

Excise taxes apply to the domestic segments of taxable air transportation and to the use of international air facilities. The Airport and Airway Extension Act of 2010, Part IV, signed into law on Dec. 22, 2010, extends these excise taxes to air transportation that begins or is paid for no later than March 31, 2011.

These excise taxes are adjusted annually for inflation:
•    For 2011, the excise tax on the domestic segment of taxable air transportation is $3.70, unchanged from 2010.
•    The excise tax for 2011 for international flights that begin or end in the United States is $16.30, up from $16.10 in 2010.
•    The tax on use of international air facilities also applies at a reduced rate to departures of interstate flights that begin or end in Alaska or Hawaii. For 2011, the international air facilities tax on these flights is $8.20, up from $8.10 in 2010.

The new rates take effect Jan. 1, 2011.

Tax cut deal: What to expect in your paycheck

Come January, you'll start to see some changes in your paycheck, as the new Social Security tax break that President Obama signed into law Friday takes result. The measure, part of a sweeping package of tax cuts, will decrease the amount of money workers pay into Social Security in 2011, which will mean more take-home pay for many workers, although not for all.

Workers normally pay 6.2% on their first $106,800 of wages into Social Security. As a result of the tax cut deal passed by the House on Thursday night, they will only pay in 4.2% in 2011. So, for every thousand dollars in wages per paycheck up to the cap, one would only have $42 withheld (4.2% x $1,000), rather than $62 (6.2% x $1,000).

But given how late in the year it is, it may take employers a pair of pay periods to get everything working as it should. Employers typically need a few weeks to program and test their new payroll systems. The IRS just issued guidance on Friday morning, a few weeks later than normal because Congress waited until the very last minute to render its decision on tax policy for 2011.

"It could be the third paycheck of the year before you see a 'normal' check," said Scott Mezistrano, senior manager of government relations of the American Payroll Association.

Here's what that might mean:

Say you make $1,000 a paycheck. Your first paycheck in 2011 may have $62 withheld -- or $20 too much -- because your employers' payroll tax system has not been fully re-programmed, Mezistrano said. To compensate you for that, only $22 may be withheld in your second paycheck (4.2% x $1,000 - $20).

And, with any luck, by your third paycheck in 2011, everything will be set to the right dial. The IRS on Friday asked employers "to adjust their payroll systems as soon as possible but not later than Jan. 31, 2011. For any Social Security tax over withheld during January, employers should make an offsetting adjustment in workers' pay as soon as possible, but not later than March 31, 2011."

How much more they will net relative to this year depends on whether they qualified for the expiring Making Work Pay credit. That credit provided up to $400 to any working individual making less than $75,000 (or up to $800 for working couples making less than $150,000).

For instance, individuals who make $50,000 will see a bump of $1,000 in take-home pay, which is $600 more than the Making Work Pay credit they got this year. For a couple at that income level, it will mean $200 more than they received under Making Work Pay.

For people making less than $20,000 (or couples making less than $40,000), they may actual see a drop of about $210 on average in their take-home pay relative to this year, because the payroll tax break will be worth less to them than the Making Work Pay credit was.

The IRS noted that the Social Security tax break for 2011 will have no effect on your future Social Security benefits, which are based on your career earnings.

Deal on Bush-era tax cuts

In an eleventh-hour compromise, United States President Barack Obama struck a deal with his well-established Republican opposition to extend Bush-era tax cuts for another two years.

The cuts, introduced in 2001 by the former President, George W. Bush, were set to end on December 31 since Congress was forbidden from making them permanent under rules at the time. The situation saw both the White House and the opposition digging in their heels as the deadline approached.

President Barack Obama had initially hoped to protect the tax cuts for middle-class Americans while allowing the benefit to lapse for the richest two per cent a distinction that Republicans sought to block.

Under the bargain struck this week, Mr. Obama will have his way at smallest amount on one item on the White House agenda the extension of unemployment benefits and a payroll tax cut that will improve the lot of ordinary Americans.

In remarks following the negotiations, Mr. Obama said he “completely disagreed” with the Republican view that the tax cuts, including for the wealthiest, should be made permanent. “A permanent extension of these tax cuts would cost us $700 billion at a time when we need to start centering on bringing down our deficit,” he said.

He, however, said he would not accept the “chilling prospect” faced by middle-class Americans of a tax rise on January 1, 2011, and unemployment insurance payouts drying up. “Make no mistake; allowing taxes to go up on all Americans would have raised taxes by $3,000 for a typical American family. And that could cost our economy well over a million jobs,” he said.

While the deal marks the breaking of a stalemate that could have spelt economic doom for millions of American households still reeling from the effects of the downturn, some experts noted that Mr. Obama has endangered the support of his liberal base.
Economist Paul Krugman recently argued against precisely such a deal, saying: “Mr. Obama should draw a line in the sand, right here, right now. If Republicans hold out, and taxes go up, he should tell the nation the truth, and denounce the blackmail attempt for what it is.”

Under the bipartisan deal, American families will retain not only the Bush-era tax cuts, but also those introduced under Mr. Obama.

Mr. Obama said that in exchange for a temporary extension of tax cuts for the wealthiest, middle-class tax credits such as the Earned Income Tax Credit and the Child Tax Credit would persist, as would the American Opportunity Tax benefitting nearly eight million students.

The agreement will also see unemployment insurance extended for a further 13 months, a direct benefit to nearly three million Americans.

State finances billions in the red

The State's finances were 13.3 billion euro in the red even though the Government took in more tax than predictable. The latest Exchequer figures showed revenue officials took in 470 million euro more in levies than predictable.

The Department of Finance said a higher-than-predicted corporation tax intake joint with smaller surpluses in excise and VAT offset falls in income tax. Despite the better than expected returns, taxes are still 1.3 billion euro below the first 11 months of last year.

Michael Noonan, Fine Gael finance spokesman, said the figures exposed a deep split in Irish society, revealing the hardship now facing huge numbers of Irish families. "On one side, the multinational sector and large companies are enjoying a reasonable resurgence," Mr Noonan said.

Striking a more conciliatory tone, Joan Burton, Labour's Finance spokeswoman, said that after three years of haemorrhaging tax revenues there was now evidence Exchequer figures were stabilising.

"Due to the continuing depressed state of the economy, tax gate are 646 million euro, or 4.1%, down on 2010 for the year to date," Ms Burton said.

"This serves to underscore the challenge facing any government in meeting the onerous repayments negotiated by the Fianna Fail government in their bailout agreement with the EU-IMF troika. "