Support  Release Notes ...

Version 3.04 released Sept 15, 2001

This screen contains notes,  and fixes for this version.

• Notes
• Known problems and errors
• Problems and errors fixed

Back to "About This Release" Page.

Notes

This version updates the tax calculations to reflect changes made in the 2001 tax act. 

By the terms of the act itself, all of its provisions expire at the end of 2010. 

As a result, for the Financial Advisor's 30 year projections, you will see taxes, in general, decline in years 2002 through 2010, as the tax-reduction provisions phase in.  Then taxes will suddenly spike upward in 2011, when the entire 2001 tax act expires.

In detail, here are the changes we made:

1. Tax rates:

Tax rates for each bracket now depend on the calendar year:

• 2001: 27.5, 30.5, 35.5, 39.1

• 2002 and 2003: 27, 30, 35, 38.6

• 2004 and 2005: 26, 29, 34, 37.6

• 2006 through 2010: 25, 28, 33, 35

• 2011 and following, 28, 31, 36, 39.6

In 2011, the tax rates return to their 2000 levels.

2. Tax brackets

There is a new 10% bracket, starting in 2002.

The size of the 15% bracket changes from year to year, now, based on filing status.  It becomes slightly more favorable to taxpayers who are filing jointly, to reduce the so-called "marriage penalty."

In 2011, the brackets return to their year-2000 levels.

3. Itemized deductions.

In the year 2000, itemized deductions are partially phased-out for upper-income taxpayers.

Under the 2001 tax act, the itemized deduction phase-outs are themselves being phased out over time.  By 2010, there is no itemized deduction phase-out for people at upper income levels..

In 2011, the itemized deduction phase-out is fully reinstated back to year-2000 levels.

4. Personal exemptions.

In the year 2000, personal examptions are phased out and can be lost for upper income taxpayers.

The phase-out of personal exemptions is itself being phased out.  By 2010, personal exemptions are not phased out at all at upper  income levels.

In 2011, the personal exemption phase-out is fully returned to year-2000 levels, and upper-income taxpayers will again have their personal exemptions reduced or lost.

5. Standard deduction.

To address the "marriage penalty," the standard deduction is being increased for couples who are married filing joint returns.  By 2010, the standard deduction fo rmarried couples will be double that for single individuals.

In 2011, the standard deduction returns to 2000 levels, adjusted only for inflation since then.

6. Earned Income Credit.

For joint filers only, the taxpayers will be able to earn more income than before and still qualify.  The amount of incremental income increases by $1,000 for 2002 through 2004, by $2,000 for 2005 through 2007, and by $3,000 for 2008, and $3,000 adjusted for inflation in 2009 and 2010.

In 2011, the amount joint-filing taxpayers can earn will be returned to 2000 levels,  adjusted only for inflation since then.

Qualifying children now includes children and grandchildren of stepchildren -- until 2011, when the law changes back.

Foster children now have to live only six months with a family to be qualifying children -- until 2011, when the law changes back.

Now, if two people can claim the child as an exemption, the child care credit goes to the parent first, then to the higher income  individual -- until 2011, when the law changes back.

7. Child Credit.

The child credit is a $500 credit for each child.  Starting in 2001, it increases steadily as follows:

• $600 - 2001 through 2004

• $700 - 2005 through 2008

• $800 - 2009

• $1000 - 2010

In 2011 and subsequent years, the credit returns to $500.

The child credit is now refundable in some cases.  That means that if a taxpayer's taxes are less than the credit, the taxpayer receives a check from the government for the difference.  The formula for refundability is somewhat complicated, as follows:

For 1 to 2 children:

• For years 2001 - 2004, the refundable portion is the smaller of the full CreditAmount or 10% of (Earned Income - $10,000). The $10,000 amount will increase with inflation.

• For years  2005 - 2010, the refundable portion is the smaller of the CreditAmount or 15% of (Earned Income - $10,000).  Again, the $10,000 amount will increase with inflation.

For 3 or more children, we first do the calculation for 1 or 2 children.  Then, the refundable portion  is the larger of that result or the FICA taxes + 1/2 of self employment taxes - the Earned Income Credit amount.

This credit can have significant value for low-income taxpayers (but those who have earned income over $10,000, adjusted for inflation) who wish to claim the dependent exemption.

In 2011 and subsequent years, the child credit again becomes nonrefundable.

8. Child Care Credit.

The Child Care credit is a credit for people who pay for child care so they can work or seek employment.

As of the year 2000, the credit is a percentage (20% to 30%) of qualifying expenses (the first $2,400 of day care expenses for one child or $4,800 for more than one child).  Qualifying children must be age 12 or under.

Under the 2001 tax act:

• For years 2003 through 2010, the level of qualifying expenses is increased to $3,000 for one child and $6,000 for more than one child.

• The top percentage increases from 30% to 35%.

• In the year 2000, if you earn over $10,000, the 30% figure becomes reduced (to as low as 20%).  Under the 2001 tax act, you have to earn over $15,000 before the 35% figure begins to be reduced (to as low as 20% still).

Family Law Software had not been calculating the child care credit at all.  In this release, it is calculated in the Financial Advisor, based on the number of children under age 13 at the end of a given year and the child care expenses entered as "regular expenses."   (If a child turns 13 in a year, we do a pro-rata tally of child care expenses.)  We assume that the parent who has custody claims this tax benefit. 

In 2011, the percentages, phase-outs, and level of qualifying expenses all return to year 2000 levels.

9. Alternative Minimum Tax.

The Alternative Minimum Tax is a parallel tax system aimed at reducing or eliminating tax deductions (including some itemized deductions) typically claimed by the wealthy.

In the 2001 tax act, this tax is reduced, but only for the years 2001 through 2004.

In 2005, the Alternative Minimum Tax returns to the levels it had in the year 2000.

10. Student loan interest deduction.

The student loan interest deduction in the year 2000 allows students who are not claimed as an exemption, or their parents, to claim a deduction for up to $2,500 per year of interest on student loans, but only for interest paid during the first 60 months of payments.

The 2001 tax act made a number of changes:

• The 60 month limitation is waived -- interest is deductible during all the years the 2001 tax act is in effect.

• The phase-outs are increased (so wealthier taxpayers than before can claim the deduction).

One effect of this rule is that loans made more than five years ago, whose interest currently is not deductible, have their interest become deductible again.

In 2011, the laws as of the year 2000 return. 

At that point, only loans where payment started in 2006 or later will have their interest be deductible at all.  For example, loans where payment started in 2006 will, by 2011, have their 60 month period mostly used up, and may have only a few months of deductibility left.

Back to top.

Known Problems and Errors  

There are no known problems or errors with this edition.

Back to top.

Problems and Errors Fixed  

When you clicked "Results," recent changes were not being immediately reflected in the charts and graphs.  Now every change should be reflected when you click the "Results" link.

Back to top.

Back to "About This Release" Page