Section 4 Explanation of Terms

The Explanation of Terms section is designed Additional to clarify the statistical content of this report and (line 44b, Form 1040) should not be construed as an interpretation of Taxes calculated on Form 4972, on Lump- the Internal Revenue Code, related regulations, Sum Distributions, were reported here. procedures, or policies. The explanation of terms relates to column or row titles used in one or more tables in this Adjusted Gross Less Deficit report. It provides the background or limitations (line 37, Form 1040) necessary to interpret the related statistical tables Adjusted gross income (AGI) is defined as in this report. For each title, the line number of the total income (line 22, Form 1040) minus statutory tax form on which it is reported appears after the adjustments (lines 23 through 36, Form 1040). title. Definitions marked with the symbol ∆ have Total income included: been revised for 2011 to reflect changes in the law. • Compensation for services, including , , fees, commissions, tips, Additional Child Tax Credit taxable fringe benefits, and similar items; (line 65, Form 1040) • Taxable interest received; • Ordinary dividends and capital gain See “Child Tax Credit.” distributions; • Taxable refunds of state and local income Additional Standard Deduction taxes; (line 39a, and included in line 40, Form 1040) • Alimony and separate maintenance See “Standard Deduction.” payments; • Net income derived from a business, , or farm; • Net gain from the sale of capital assets; • Net gain from the sale of business 155 156 Individual Returns 2011

property; • The cost basis of , annuity, or IRA • Taxable amounts of annuities, , and payments or distributions; individual arrangement (IRA) • Tax-exempt interest; distributions; • Limited exclusion of social security benefits • Rents and royalties; and railroad retirement benefits (only • Distributive share of partnership or S required to be reported if there was also a corporation net income; taxable amount); • Net income from an estate or trust; • Limited exclusion of qualified foreign • compensation; earned income; • Taxable amounts of social security and • Exclusion of part or all of the gain from railroad retirement (Tier 1) payments; sale of principal residence up to $250,000 • Taxable distributions from a Coverdell ($500,000 on joint returns); and savings account or qualified The following statutory adjustments (lines tuition program; 23 through 36, Form 1040) were subtracted from • Taxable distributions from a health savings total income to arrive at adjusted gross income account (HSA) or Archer MSA; (line 37, Form 1040): • Prizes, awards, and gambling winnings; • Educator expenses; • Jury duty pay; • Certain business expenses of reservists, • Amounts received that were claimed as a performing artists, and fee-basis deduction or credit in a prior year; government officials; • Bartering income; • Health savings account deduction; • Alaska permanent fund dividends; and • Moving expenses; • Alternative trade adjustment assistance • One-half of self- tax; payments; • Contributions to self-employed retirement • Income from the rental of personal property plans (Keogh or simplified employee engaged in for profit; pension) and certain contributions to IRAs; • Income from an activity not engaged in for • Self-employed deduction; profit; • Forfeited interest and penalties incurred by • Loss on certain corrective distributions of persons who made premature withdrawals excess deferrals; of funds from time savings accounts; • Dividends on insurance policies if they • Alimony payments; exceeded the total of all net premiums paid; • IRA deductions; • Recapture of a charitable contribution • Certain student loan interest; deduction relating to the contribution of • Tuition and fees deduction; a fractional interest in tangible personal • Domestic production activities deduction; property or if the charitable organization • Archer MSA deduction; disposes of the donated property within 3 • Amount of jury duty pay reported on years of the contribution; line 21, Form 1040, that was repaid to • Recapture of a charitable contribution employers; deduction if the charitable organization • Deductible expenses related to income on disposed of the donated property within 3 line 21 from the rental of personal property years of the contribution; engaged in for profit; • Cancelled debts; • Forestation or reforestation expenses; • Taxable part of disaster relief payments; • Foreign housing exclusion; Some reported income was fully or partially • Repayments of supplemental excluded from total income for 2011. The unemployment compensation; following is a list of such items: • Contributions to section 501(c)(18(D) Explanation of Terms 157

pension plans; Alimony Paid • Contributions by certain chaplains to (line 31a, Form 1040) section 403(b) plans; Payments made as alimony or separate • Attorney fees and court costs paid for maintenance counted as a deduction (an adjustment actions involving certain unlawful to total income) for the person paying them. discrimination claims but only to the extent of gross income from such actions; and Alimony Received • Attorney fees and court costs paid in (line 11, Form 1040) connection with an award from the IRS for information provided that helped the Payments received as alimony or separate IRS detect tax law violations but only to maintenance were income to the person receiving the amount the award includable in gross them. income; A deficit occurred if the allowable exclusions All Other Taxes and deductions exceeded gross income, (i.e., the (lines 56, 57, 58, 59a, 59b, 60 Form 1040) amount on line 36 was greater than the amount on In this report, this amount includes the sum line 22). of the self-employment tax; social security and Medicare taxes on tip income and wages; penalty Adjusted Gross Income or Loss tax on qualified retirement plans; household See “Adjusted Gross Income Less Deficit.” employment taxes; repayment of the first-time homebuyer credit; additional taxes on health Adjustments savings accounts; additional tax on Archer See “Statutory Adjustments.” MSA distributions; additional tax on Medicare Advantage MSA distributions; tax from the recapture of the investment credit, the low income Adoption Credit ∆ housing credit, qualified plug-in electric vehicle (line 71b, Form 1040) credit, the Indian employment credit, the new Starting in 2010, the adoption credit was markets credit, credit for employer provided child refundable. As a result, all carryover from care facilities, alternative motor vehicle credit, previous years had to be reported on a 2010 Form the alternative fuel vehicle refueling credit and 8839. This credit was available to taxpayers the qualified plug-in electric drive motor vehicle who paid qualified adoption expenses in 2010 credit; recapture of federal mortgage subsidy; for an adoption that was not final at the end of COBRA premium assistance; section 72 penalty 2010, or for qualified expenses paid in 2011, for taxes; other unspecified taxes which included an adoption that was final in or before 2011. The uncollected FICA (or social security) tax on credit could have been as much as $13,360 for each tips; excess golden parachute payments; excise child. The credit began to phase out if a taxpayer tax on stock compensation from an expatriated had modified adjusted gross income in excess of corporation; an additional tax on income or $185,210 and completely phased out for modified compensation from a nonqualified deferred adjusted gross income of $225,210 or more. For compensation plan; interest of the tax due from the these statistics, the adoption credit was divided sale of residential lots and timeshares; interest on into three parts: the amount used to offset income the deferred tax on gain from certain installment tax before credits; the amount used to offset all sales; additional tax on recapture of a charitable other taxes; and the refundable portion. deduction relating to a fractional interest in tangible personal property; look-back interest; repayment of ineligible advance payments of the health coverage tax credit; and tax from recapture 158 Individual Returns 2011 of education credits. In this report, the “other a married couple filing separately, $37,225. The taxes” portion differs slightly from Form 1040, AMT exclusion was phased out if AMTI exceeded which included the taxes listed above plus tax from certain levels. For single taxpayers, the phase-out Form 4970, Tax on Accumulation Distribution of began at $112,500 and ended at $306,300. For Trusts. It is instead included in “total .” joint returns, the range was $150,000 to $447,800. (See also “Taxable and Nontaxable Returns” and For married couples filing separately, the range “Total Income Tax.”) was $75,000 to $223,900. If there was an amount remaining after Alternative Fuel Vehicle Refueling subtracting the exemption, the first $175,000 (the Property Credit first $87,500 if married filing separately) was (line 53c, Form 1040) taxed at a 26 percent rate; any excess was taxed at a 28 percent rate, except capital gains, which Taxpayers could have claimed this credit were taxed at the same rates under the AMT as for any non-depreciable alternative fuel vehicle under the regular income tax. This amount was refueling property placed in service during the tax then reduced by the recalculated AMT foreign year. Qualified alternative fuel vehicle refueling tax credit and regular income tax before credits property is any property used to store or dispense (line 44, Form 1040 minus the regular foreign an alternative fuel at the point where the fuel tax credit, line 47, Form 1040) to arrive at the is delivered into a fuel tank of a motor vehicle alternative minimum tax. propelled by the fuel. This credit was calculated Personal credits (such as the child tax credit, on Form 8911. credit, etc.) and certain eligible small business credits could be taken against the AMT. Alternative Minimum Tax ∆ (line 45, Form 1040) Alternative Motor Vehicle Credit ∆ The Revenue Act of 1978 established the (included in line 53c, Form 1040) alternative minimum tax (AMT) to ensure that Taxpayers could have used Form 8910 to a minimum amount of income tax was paid by claim a credit for an alternative motor vehicle they taxpayers who might otherwise be able to legally put into service during the tax year. An alternative reduce, or totally eliminate, their tax burdens. The motor vehicle is a new vehicle that qualifies as one AMT was levied on income including benefits of the following two types of vehicles: received in the form of deductions and exclusions, • Qualified fuel cell vehicle, and which reduced an individual’s regular effective • Qualified plug-in electric drive motor tax rate. These benefits, known as “alternative vehicle (This could not be taken for any minimum tax preferences and adjustments,” vehicle purchased after 2010). resulted from the treatment that the tax law gave to particular income and expense items. Alternative minimum taxable income (AMTI) American Opportunity Credit (line 28, Form 6251) was defined as taxable (line 66, Form 1040) income for ordinary income tax purposes adjusted For these statistics, the American opportunity for net operating losses from other tax years, plus credit was divided into three parts: the amount adjustments and preferences. AMTI was then used to offset income tax before credits; the reduced by an exemption amount determined by amount used to offset all other taxes; and filing status and AMTI. If the return was filed the refundable portion. (See also “Education jointly by a married couple or a surviving spouse, Credits.”) the maximum amount of the exemption was $74,450. The maximum amount for a single or head of household taxpayer was $48,450, and for Explanation of Terms 159

Archer Medical Savings Account against “Other Income” (line 21, Form 1040). (MSA) Deduction ∆ Information on sole proprietorships, business (included in line 36, Form 1040) receipts, and expenditures can be found in the Summer 2013 issue of the Statistics of Income Certain taxpayers who were covered only by a Bulletin. high-deductible health plan were able to participate in the Archer medical savings account program. The taxpayer was allowed to take a deduction of Business or Profession Net Income Less up to $1,982.50 ($4,612.50 for a family) a year for Loss contributions to a medical savings account. The See “Business or Profession Net Income or Archer medical savings accounts were used to pay Loss.” for medical expenses not reimbursable by medical insurance. Form 8853, Archer MSA’s and Long- Cancellation of Debt Term Care Insurance Contracts, was used for the (included in line 21, Form 1040) medical savings accounts. Taxpayers had to report any nonbusiness debt that was cancelled or forgiven as income on Form Basic Standard Deduction 1040, line 21. Taxpayers also had to include any (included in line 40, Form 1040) forgiven interest on the forgiven debt if the interest See “Standard Deduction.” would not have been deductible. If the interest would have been deductible, taxpayers did not Business or Profession Net Income or have to include it as income. Also, a taxpayer did Loss not have to report forgiven debt as income if the (line 12, Form 1040) forgiven amount was intended as a gift. This source of income or loss was reported by individuals who were sole proprietors of a nonfarm Capital Assets business, including self-employed members of a See “Sales of Capital Assets, Net Gain or profession. Loss.” If two or more sole proprietorships were operated by the same taxpayer, the single amount Capital Construction Fund Reduction of net income or loss included in the adjusted gross (included in line 43, Form 1040) income represented the combined net income and The Capital Construction Fund (CCF) is a loss from all sole proprietorships. The proprietor special investment program administered by the was required to exclude investment income from National Marine Fisheries Service and the Internal business profits and include it, instead, with the Revenue Service. This program allows fishermen various types of investment income for which to defer paying income tax on certain income they separate provisions were made on the individual invest in a CCF account and later use to acquire, income tax return. build, or rebuild fishing vessels. This amount Total expenses (line 28, C) were is subtracted from tax table income to calculate deducted from gross income (line 7, Schedule C) taxable income. to arrive at a tentative profit or loss. Expenses for business use of the taxpayer’s home (line Capital Gain Distributions Reported on 30, Schedule C) were then deducted to arrive Form 1040 at net income or loss. Proprietor compensation (included in line 13, Form 1040) was included in computing net income and not Taxpayers who had capital gains strictly from allowed as a business deduction. The deduction capital gain distributions could enter the amount of net operating losses from previous years was directly on line 13, Form 1040. not considered a business expense, but was offset 160 Individual Returns 2011

Capital Gain Distributions Reported on while employed or looking for , incurred Schedule D expenses for the care of dependent children (line 13, Schedule D) under age 13, or disabled dependents of any age. Qualified expenses included those for services See “Sales of Capital Assets, Net Gain or performed within the home by non-dependent Loss.” baby-sitters, maids, or cooks. Expenditures to care for children under the age of 13 or any Capital Gains and Losses other qualified individuals for out-of-home, See “Sales of Capital Assets, Net Gain or non-institutional care qualified for the child care Loss.” credit. If the taxpayer omitted or used an invalid Social Security number or employer identification Cash Contributions number (EIN) for the child care provider, the IRS (line 16, Schedule A) used mathematical error procedures to change the See “Contributions Deduction.” child care credit. The maximum amount of care-related expenses on which the credit could be based with Casualty or Theft Loss Deduction, one qualifying child or dependent, was the smaller Nonbusiness of earned income or $3,000; with more than one (line 20, Schedule A) dependent the credit was based on the smaller of Nonbusiness casualty and theft losses were earned income or $6,000. For returns of married deductible, as an itemized deduction, from couples filing jointly, earned income refers to adjusted gross income to the extent that the the earnings of the spouse with the lesser earned nonreimbursable net loss for each such casualty income. Exceptions were allowed if the spouse or theft exceeded $100, and the combined amount was disabled or a full-time student. for all net losses during the year exceeded 10 The credit was equal to 35 percent of eligible percent of adjusted gross income. (See also “Total expenses for taxpayers with adjusted gross income Itemized Deductions.”) of $15,000 or less. The credit was reduced by one percentage point for each $2,000 or fraction thereof of adjusted gross income in excess of Casualty or Theft Loss of Income- $15,000 up to $43,000. The credit remained at 20 Producing Property percent of expenses for individuals with adjusted (included in line 28, Schedule A) gross income over $43,000. See “Miscellaneous Itemized Deductions.” The amount of the credit which could be claimed was limited to income tax before credits, Certain business expenses of reservists, and any excess was not refundable. performing artists, and fee-basis government officials Child Tax Credit (line 24, Form 1040) (line 51, Form 1040) Qualified business expenses were deductible A credit was allowed for each qualifying child for reservists, performing artists, and fee-basis under 17. To be a qualifying child, the person had state or local government officials, whether or not to be a son, daughter, stepchild, adopted child, the taxpayer itemized their deductions. qualifying foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for Child Care Credit example, grandchild, nephew, niece), for whom (line 48, Form 1040) the taxpayer claims a dependent exemption. This credit could be claimed by taxpayers who, The taxpayer could claim up to $1,000 for each Explanation of Terms 161 child meeting the AGI phase out guidelines. The they were at least 70 ½ years old. However, the credit was phased out by $50 for each $1,000, or taxpayer could not take a charitable deduction on fraction thereof, that AGI exceeded: $110,000 for Schedule A for the same contribution. taxpayers filing jointly; $55,000 for married filing separately; and $75,000 for single filers, head of Contributions Carryover from Prior households, or widow(ers). Year An additional child tax credit was refundable (lines 18, Schedule A) if the taxpayer met both the general requirements and some additional requirements. The additional See “Contributions Deduction.” child tax credit was not included in credits but as a payment instead (line 65, Form 1040). The credit Credit for Federal Tax on Gasoline and limit based on earned income was 15 percent of the Special Fuels taxpayer’s earned income that exceeded $3,000. (line 70, Form 1040) Members of the US Armed Forces, who served in This refundable credit (claimed on Form a combat zone, had their nontaxable combat pay 4136) was allowed for federal excise taxes paid count as earned income in figuring this credit. For on gasoline and special fuels, such as gasohol and the statistics, this amount was broken down into diesel fuel, provided the fuel was used for certain the additional child tax credit to offset other taxes purposes (such as farm or non-highway use in a and the refundable amount. trade or business), bought at a price that included the tax, and a refund of the tax was not requested Contributions Deduction or received. The credit could reduce unpaid total (lines 16-19, Schedule A) tax liability or be refunded. Taxpayers could deduct contributions to certain organizations that were religious, Credit for the Elderly or Disabled charitable, educational, scientific, or literary in (line 53c, Form 1040) purpose. Contributions could be in cash, property, A credit (claimed on Schedule R) for the or out-of-pocket expenses that a taxpayer paid in elderly or permanently and totally disabled was doing volunteer work for a qualified organization. available to taxpayers age 65 or older (within Contributions were allowed as an itemized certain income limitations), and to those taxpayers deduction on Schedule A. Cash contributions under age 65 who had retired with a permanent were generally limited to one-half of the and total disability and received taxable income taxpayer’s AGI, while contributions of capital from a public or private employer because of that gain property were generally limited to 30 percent disability. The income to which the credit could (20 percent in certain cases) of the taxpayer’s be applied was reduced by nontaxable amounts AGI. Contributions which could not be deducted of social security and railroad retirement benefits, due to the AGI limitation could be carried over veterans’ pensions, and any other pension, annuity, to future years (and brought over from previous or disability benefits excluded from income under years). For all charitable contributions of $250 any other provisions of the law. or more, a written acknowledgment from the An individual was considered permanently and qualified recipient organization was required. If totally disabled when he or she could not engage other than cash contributions (i.e. clothing, cars, in any substantial gainful activity because of a stock, etc.) was $500 or more, Form 8283 had to physical or mental condition which had lasted, or be filed in order to itemize these. was expected to last, at least twelve months, or Taxpayers were able to make a tax free was determined to be terminal. distribution from an Individual Retirement The maximum credit available ($1,125) was Account to certain charitable organizations if limited to total income tax with any excess not 162 Individual Returns 2011 refundable, and was reduced if the taxpayer’s part of the self-employment adjustment increased income exceeded certain levels. Generally, if a from 50.0 percent to 59.6 percent. (See also “Self- taxpayer’s income was high enough to require Employment Tax.”) reporting social security benefits as taxable income, the taxpayer could not take the credit. Dividends (lines 9a and 9b, Form 1040) Credit from Regulated Investment Ordinary dividend income consisted of Companies distributions of money, stock, or other property (line 71a, Form 1040) received by taxpayers from domestic and Taxpayers were required to include in total foreign corporations, either directly or passed income any amounts which were allocated to through estates, trusts, partnerships, or regulated them as undistributed long-term capital gains of investment companies. Ordinary dividends also regulated investment companies. If investment included distributions from money market mutual companies paid tax on the capital gain, taxpayers funds. were entitled to claim a refundable credit (claimed Ordinary dividends did not include nontaxable on Form 2439) for their proportionate share of distributions of stock or stock rights, returns of the tax paid. For these statistics, the credit from capital, capital gains, or liquidation distributions. regulated investment companies was divided into Taxpayers were also instructed to exclude amounts three parts: the amount used to offset income tax paid on deposits or withdrawable accounts in before credits; the amount used to offset all other banks, mutual savings banks, banks, taxes; and the refundable portion. savings and loan associations, and credit unions, which were treated as interest income. Qualified dividends are the ordinary dividends Credit to 2012 Estimated Tax received in tax years beginning after 2002 that met (line 75, Form 1040) certain conditions. These included: the dividend This amount was the part of the overpayment must have been paid by a U.S. corporation or of 2011 tax that taxpayers specifically requested a “qualified” foreign corporation; the stock to be credited to their estimated tax for 2012. ownership must have met certain holding period (See also “Overpayment” and “Estimated Tax requirements; the dividends were not from Payments.”) certain institutions, such as mutual savings banks, cooperative banks, credit unions, tax-exempt Deductible Points organizations, or farmer ; and the (line 12, Schedule A) dividends were not for any share of stock that was See “Interest Paid Deduction.” part of an employee stock ownership plan (ESOP). The maximum tax rate for qualified dividends was 15 percent. Starting in 2008, the 5 percent tax Deductible Part of Self-Employment rate for qualified dividends (generally taxpayers Tax ∆ whose other income was taxed at the 10 percent (line 27, From 1040) or 15 percent rate) was reduced to zero. If a taxpayer had income from self-employment and owed self-employment tax, part of that tax Domestic Production Activities was deductible for income tax purposes. The Deduction amount was subtracted as an adjustment to total (line 35, Form 1040) income in the calculation of AGI. For 2011, since A taxpayer could have deducted the lesser the social security tax was reduced from 12.4 of 9 percent of qualified production activities or percent to 10.4 percent, the calculation of this 50 percent of wages paid with some limitations. Explanation of Terms 163

Activities included construction performed in gain net income. As in previous years, taxpayers the United States; engineering or architectural could not take the credit if their filing status was services performed in the United States; and any married filing separately, or if they claimed the lease, rental license, sale, or exchange. Other foreign-earned income exclusion. deductible items included tangible personal For this report, the earned income credit is property, qualified films and electricity, natural divided into three parts: the amount used to offset gas, or potable water that the taxpayer produced income tax before credits (limited to the amount in the United States. However, if the business needed to reduce income tax after credits to zero); activity was oil-related, this deduction was limited the amount used to offset all other taxes (limited to 6 percent. to the amount needed to reduce total tax liability to zero); and the refundable portion. Earned Income Credit ∆ (line 64a, Form 1040) Earned Income Credit, Refundable The earned income credit (EIC) for 2011 was a Portion maximum of $464 for taxpayers with no qualifying See “Earned Income Credit.” children, $3,094 for one qualifying child, $5,112 for two qualifying children, and $5,751 for taxpayers Earned Income Credit Used to Offset with three or more qualifying children. To be eligible for the credit with children, the taxpayers, Income Tax Before Credits other than married taxpayers filing jointly, must See “Earned Income Credit.” have had a qualifying child living with them for more than half the year, and have had earned Earned Income Credit Used to Offset income and adjusted gross income each less than Other Taxes $36,052 ($40,964 if two qualifying children and See “Earned Income Credit.” $43,998 if three or more qualifying children). For married filing jointly, earned income and adjusted Education Credits ∆ gross income had to be less than $41,132 for one (line 49, 66 Form 1040) child, $46,044 for two children and $49,078 for three children or more. To be eligible for the There were two credits available, the Lifetime credit without children, the taxpayer must have Learning credit and the American Opportunity had earned income and adjusted gross income less credit. A taxpayer was only able to claim one of than $13,660 ($18,740 for married filing jointly) the credits per student. The Lifetime Learning and the taxpayer (or their spouse) must have been credits were phased out for AGI between $51,000 at least 25 years of age and less than 65 years and $61,000 ($102,000 and $122,000 for married old. The credit was generally based on earned filing jointly). The American Opportunity credit income, consisting of wages, salaries, and other was phased out for AGI between $80,000 and employee compensation, plus net earnings from $90,000 ($160,000 and $180,000 if married self-employment. Members of the U.S. Armed filing jointly). A taxpayer could not take any of Forces who served in a combat zone had certain the credits if they were claimed as a dependent pay excluded from their income. These taxpayers on another return, married filing separately, or could have elected to include this pay in earned claimed a deduction for tuition and fees for the income when figuring the EIC. Taxpayers with same student. investment income totaling more than $3,150 The Lifetime Learning credit could have been were not eligible to receive the EIC. Investment used for tuition and expenses for undergraduate, income included interest income (taxable and graduate, and professional degree courses. The tax-exempt), dividend income, plus interest and credit could have been taken for an unlimited dividend income from Form 8814, and capital amount of time, as long as the taxpayer or 164 Individual Returns 2011 dependents were enrolled in post-secondary Employee Business Expense education. The Lifetime Learning credit was a See “Unreimbursed Employee Business maximum of 20 percent of the first $10,000 of Expenses.” eligible expenses, or $2,000 per return. The American Opportunity credit could Estate and Trust Net Income or Loss have been used for tuition and expenses for (line 37, Schedule E, Part III) undergraduate or other recognized education credential. The credit could only have been used This was the beneficiary’s share of fiduciary for the first 4 years of post-secondary education, as income (with the exception of the items described long as the taxpayer or dependents were enrolled below, which were reported separately) from at least half time. The maximum credit per student any estate or trust. Income from estates or trusts was $2,500 (100 percent of the first $2,000 and 25 included amounts required to be distributed, percent of the next $2,000 of qualified education amounts credited to beneficiaries’ accounts from expenses). The credit was available for the first 4 current-year fiduciary income (whether or not years of postsecondary education and 40 percent actually distributed), and any other amounts of the credit (up to $1,000) was refundable. (See which were properly paid, credited, or required to also “American Opportunity Credit.”) be distributed for that year. Taxpayers excluded their share of dividends and gains or losses from sales of capital assets or Education IRA (Coverdell Education other property, from estate or trust income. Such Savings Accounts) income (which made up the largest portion of Taxpayers could have made nondeductible income from estates or trusts) was included on the contributions up to $2,000 annually to an tax return on the separate lines provided for these educational IRA for a child under age 18. The income types and was not separately identified for earnings and withdrawals were tax-free to the the statistics. A loss from an estate or trust was extent that withdrawals did not exceed the allocated to the beneficiary only upon settlement beneficiary’s qualified higher education expenses or termination of an estate or trust and was limited for the year. The educational IRA contribution by the “passive loss” rules. was phased out for modified AGI between $95,000 The columns labeled “net income” and “net and $110,000 (between $190,000 and $220,000 loss” represent the sum of all income and losses for taxpayers married filing jointly) (See also reported from all estates or trusts, i.e., the net “Individual Retirement Arrangement Deductible amount computed on a return-by-return basis. Payments.”) Estate and Trust Net Income Less Loss Educator Expenses Deduction See “Estate or Trust Net Income or Loss.” (line 23, Form 1040) If a taxpayer was an eligible educator Estimated Tax Payments in kindergarten through grade 12 in 2011, a (line 63, Form 1040) deduction of $250 ($500 for two educators filing This figure represents the total tax payments jointly) qualified expenses may have been taken. made for 2011 using Form 1040-ES, and any This deduction could have been taken even if the overpayment from the taxpayer’s 2010 return that taxpayer did not itemize deductions. Taxpayers was applied to the 2011 estimated tax. Generally, may have been able to deduct expenses more individuals were required to make estimated tax than the $250 limit on Schedule A, line 21. payments if they expected to owe, after subtracting withholding and credits, at least $1,000 in tax for 2011, and they expected withholding and credits Explanation of Terms 165 to be less than the smaller of: (a) 90 percent of more than half of 2011; the tax shown on Form 1040 for 2011, or (b) 100 5) The individual met certain citizenship percent of the tax shown on Form 1040 for 2010 requirements; (110 percent of the tax shown on Form 1040 for 6) The individual did not file a joint return 2010 for taxpayers with adjusted gross income with his or her spouse; greater than $150,000 ($75,000 for married filing These statistics classify exemptions as children separately)). at home, children away from home, parents, and other. Excess Social Security Taxes Withheld (line 69, Form 1040) Farm Net Income or Loss If a taxpayer earned more than $106,800 in (line 18, Form 1040) total wages from two or more employers in 2011, This source of income or loss was reported by too much social security (FICA) or Railroad individuals who were sole proprietors of farms. Retirement Tax Act (RRTA) tax may have been When there were two or more farms operated by withheld from his or her wages. (There was no the same taxpayer, the single amount of profit base limitation for Medicare tax; therefore, or loss included in the adjusted gross income all covered wages were subject to Medicare tax.) represented the combined profit and loss from all Filers claimed credit for such overpayment on farming activities. Farm business total expenses their income tax returns. Excess social security, or (line 33, Schedule F) were deducted from farm RRTA, taxes withheld could be taken as a credit gross income (line 9, Schedule F) to arrive at farm toward payment of the taxpayer’s income tax, or net profit or loss. refunded. In the case of a joint return, the credit Gains from certain sales of livestock and crops was computed separately for each taxpayer. that qualified for capital gains treatment were excluded from farm net profit or loss and included Exemptions ∆ in capital gains. Farm rental income was included (lines 6, 42, Form 1040) in total rent net income or loss. (See also “Farm Rental Net Income or Loss.”) In the computation of taxable income, a $3,700 deduction was allowed for each exemption claimed. In general, an exemption was allowed Farm Rental Net Income or Loss for each taxpayer and dependent shown on a (line 40, Schedule E) return. If an individual who could be claimed as Taxpayers were required to report farm rental a dependent by another taxpayer also filed his or income and expenses separately from other farm her own return, that individual could not claim profit or loss if they: a) received income based on his or her own exemption or any exemptions for crops or livestock produced by the tenant, and b) dependents. did not manage or operate the farm to any great With few exceptions, an individual had to meet extent. This income and expenses were reported several requirements to qualify as a dependent for on Form 4835 with net income less loss then 2011: reported on Schedule E. (See also “Total Rent and 1) The individual was related to the taxpayer Royalty Income or Loss.”) (such as a son, daughter, or parent); 2) The individual was under age 19, or a Farm Rental Net Income Less Loss full-time student under age 24, or any age and See “Farm Rental Net Income or Loss.” permanently and totally disabled; 3) The individual did not provide half of his or her support for 2011; Filing Status 4) The individual lived with the taxpayer for See “Marital Filing Status.” 166 Individual Returns 2011

First-Time Homebuyer Credit ∆ Foreign-Earned Income Exclusion ∆ (line 67, Form 1040) (included in line 21, Form 1040) For Tax Year 2011, a taxpayer may have only Qualified taxpayers could exclude from total claimed this credit (up to $8,000, or $4,000 if income a certain amount of foreign-earned income married filing separately) if they actually bought a and employer-provided foreign housing expenses home before July 1, 2011 (if the taxpayer entered if their home, for tax purposes, was in a foreign a written binding contract before May 1, 2011), country. Taxpayers had to refigure their tax did not own a main home during the prior 3 years using the foreign-earned income worksheet. The and they (or spouse if married) were a member refigured tax was based on nonexcluded income of the uniformed services or Foreign Service or using the tax tables that would have applied had an employee of the intelligence community on they not claimed the exclusion. qualified offical extended duty outside the United Qualifying individuals were limited to the States for at least 90 days during the period lesser of a $92,900 exclusion or their total foreign- beginning after December 31, 2008 and ending earned income. Also, they could elect to exclude before May 1, 2010. Taxpayers were only allowed a portion of employer-provided foreign housing to claim this credit in Tax Year 2011 if their expenses. If the taxpayer elected to take both modified AGI was below $145,000 ($245,000 the foreign-earned income and foreign housing if married filing jointly). Taxpayers may have exclusions, the total amount of both exclusions claimed this credit (up to $6,500, or $3,250 if was limited to the taxpayer’s total foreign earned married filing separately) if they were considered income. The foreign-earned income exclusion a long-time resident of the same home. Taxpayers was entered as a negative amount on this line by were considered a long-time resident of the same the taxpayer but edited into a separate field during home if they previously owned and used the same service center processing. The employer-provided main home for any 5-consecutive-year period foreign housing exclusion was left as part of other during the 8-year period ending on the date of the income. (See also “Other Income.”) purchase of the new home. For homes purchased in 2009, 2010 or 2011, taxpayers had to repay the Foreign Housing Deduction ∆ credit only if the home ceased to be their main (included in line 36, Form 1040) home within a 36-month period beginning on the Qualified taxpayers who had foreign housing purchase date. For these statistics, the first-time expenses that were not provided by their employer homebuyer credit was divided into three parts: the were eligible to deduct these expenses from total amount used to offset income tax before credits; income. This deduction was limited to $27,870 the amount used to offset all other taxes; and the with exceptions based on the location of the refundable portion. foreign housing. This deduction together with the foreign-earned income exclusion was limited First-time Homebuyer Credit to the total amount of foreign-earned income for Repayment 2011. (line 59b, Form 1040) Taxpayers who claimed the first-time Foreign Tax Credit homebuyer credit for a home bought in 2008, (line 47, Form 1040) generally had to begin repaying it on their 2010 Individuals who paid income or excess profit return. In addition, taxpayers generally must taxes to a foreign country or U.S. possession could repay any credit claimed for 2009 or 2010 if the claim either this credit against Federal income tax home was sold in 2011 or it stopped being the liability, or take an itemized deduction for the main home in 2011. amount of the foreign tax payment. Depending on the taxpayer’s income and taxes, the foreign tax Explanation of Terms 167 credit could be less than the amount of foreign tax 21, Form 1040. These gambling earnings were paid. Qualifying foreign taxes paid in excess of edited into a separate field during service center the allowable amount for Tax Year 2011 could be processing. Gambling losses were not allowed carried back 1 yea,r and then forward 10 years. to offset winnings on line 21. Instead, gambling losses were an itemized deduction reported on Forms 1040, 1040A, and 1040EZ Schedule A. (See also “Gambling Loss Deduction” The individual income tax system utilizes and “Other Net Income or Net Loss.”) three major forms to collect income and tax information: Forms 1040, 1040A, and 1040EZ. Gambling Loss Deduction A variation of the basic forms is an electronically (included in line 28, Schedule A) filed form. Returns of all types were included in Gambling losses (to the extent of gambling the population of returns subjected to sampling, winnings) were fully deductible for taxpayers and classified by the guidelines for filing a standard who itemize deductions. (See also “Gambling form (i.e., Forms 1040, 1040A and 1040EZ) Earnings”, “Total Itemized Deductions”, and discussed below. For example, if a return was “Miscellaneous Itemized Deductions.”) filed electronically that could have been a Form 1040EZ had it been filed on paper, it would have ∆ been considered a Form 1040EZ in the statistics. General Business Credit (line 53a, Form 1040) However, a paper return that could have been filed on a simpler form was classified by the form on The general business credit consisted of the: which it was actually filed. • investment credit, The forms represented different levels of • research credit, complexity with regard to the information • low-income housing credit, reported. The Form 1040EZ for instance, could • disabled access credit, only be used if taxable income was less than • renewable electricity production credit, $100,000, non-wage income came from only a • Indian employment credit, limited number of sources, and the taxpayer did • orphan drug credit, not itemize deductions, have any dependents to • new markets credit, claim, and had no adjustments to income. The • small employer pension plan startup Form 1040A could only be used if taxable income credit was less than $100,000, non-wage income came • employer-provided child care facilities from only a limited number of sources, and the and services credit taxpayer did not itemize deductions. The Form • biodiesel fuels credit, 1040 had to be used if taxable income was greater • low sulfur diesel fuel production credit, than $100,000. In addition, the taxpayer had to • distilled spirits credit, file Form 1040 if he or she itemized deductions or • nonconventional source fuel credit, had income (or losses) from a source not provided • energy efficient home credit, for on Form 1040A or 1040EZ, used certain tax • energy efficient appliance credit, provisions, or had certain tax credits not on Form • alternative motor vehicle credit, 1040A or 1040EZ. (These forms can be found in • alternative fuel vehicle refueling property Section 5, 2011 Forms.) credit, • mine rescue team credit, • agricultural chemicals security credit, Gambling Earnings • credit for employer differential wage (included in line 21, Form 1040) payments, Gambling earnings include proceeds from • carbon dioxide sequestration credit, lotteries, raffles, etc, and are included in line • qualified plug-in electric drive motor 168 Individual Returns 2011

vehicle credit, Health Coverage Credit (formerly • qualified plug-in electric vehicle credit, Health Insurance Credit) ∆ • new hire retention credit, and (line 71d, Form 1040) • credit from electing large partnerships, A taxpayer who was an eligible trade Taxpayers claiming more than one of these credits adjustment assistance (TAA), alternate TAA, or were required to summarize them on Form 3800, Pension Benefit Guaranty Corporation pension General Business Credit. The general business recipient was able to take this credit. A taxpayer credit was limited to 100 percent of the first $25,000 could not take the credit if he or she was covered ($12,500 for a married couple filing separately) under any employer-sponsored health plan. The of tax liability and 25 percent of the excess over credit was equal to 80 percent of the amount the $25,000. If the current year general business credit taxpayer paid for qualified health insurance from exceeded the tax liability limitation, the excess January to February of 2011, and 72.5 percent amount could be carried back to the preceding tax from March to December of 2011, minus any year, then forward 20 years. Archer medical savings account and health Starting in 2008, the general business credit savings account (HSA) distributions used to was expanded to accommodate all general pay the amount. For these statistics, the health business credits allowed against the alternative coverage credit was divided into three parts: the minimum tax. These credits consisted of the: amount used to offset income tax before credits; • investment credit, the amount used to offset all other taxes; and the • work opportunity credit, refundable portion. • alcohol and cellulosic biofuel fuels credit, • low-income housing investment credit, • renewable electricity, refined coal, and Health Savings Account Deduction Indian coal production credit, (line 25, Form 1040) • credit for employer social security and A deduction for contributions to a health Medicare taxes paid on certain employee savings account was limited to $3,050; $6,150 for tips, family coverage. These limits were $1000 higher • qualified railroad track maintenance if the taxpayer was age 55 or older. A taxpayer credit, and could not contribute to an HSA starting the first • credit for small employer health insurance month he or she was enrolled in Medicare. A premiums taxpayer was able to exclude from income, a Starting in 2010, the Small Business qualified funding distribution made from an IRA Act of 2010 allows general business credits for to an HSA. This was a one-time distribution made eligible small businesses to offset both the regular directly by the trustee of the taxpayer’s IRA to the and alternative minimum tax (AMT). Such HSA. In addition, an employer was able to make a eligible small business credits determined in the rollover contribution to an employee’s HSA from first tax year in 2010 are carried back five years. a qualified health flexible spending arrangement For purposes of the statistics in this publication, or a qualified health reimbursable arrangement. an eligible small business is a sole proprietorship with average gross receipts (reduced by returns Home Mortgage Interest Deduction and allowances) of less than $50 million for the (lines 10+11, Schedule A) 3-tax-year period preceding the tax year of the The total home mortgage interest deduction credits. consists of interest paid to financial institutions on Schedule A, line 10 and interest paid to individuals General Sales Tax Deduction on Schedule A, line 11. (See also “Interest Paid See “Sales Tax Deduction.” Deduction.”) Explanation of Terms 169

Home Mortgage Interest Paid to investment company credit were included in the Financial Institutions total credits as “earned income credit used to offset (lines 10, Schedule A) income tax before credits,” “first-time homebuyer See “Home Mortgage Interest Deduction.” credit used to offset income tax before credits,” “refundable prior year minimum tax credit used to offset income tax before credits,” “American Home Mortgage Interest Paid to opportunity credit used to offset income tax before Individuals credits,” “adoption credit used to offset income (lines 11, Schedule A) tax before credits,” “health coverage credit used to See “Home Mortgage Interest Deduction.” offset income tax before credits,” and “regulated investment company credit used to offset income Household Employment Tax ∆ taxes before credits.” Any tax remaining after (line 59a, Form 1040) subtraction of all credits, including the credits mentioned above, was tabulated as “income tax Taxpayers paying domestic employees more after credits.” than $1,700 annually, generally had to pay social security, Medicare and federal unemployment taxes for these employees by filing Schedule H, Income Tax Before Credits ∆ Household Employment Taxes, with their income (line 46, Form 1040) tax return. For 2011, the FUTA tax rate was 6.2 This amount consisted of the tax liability on percent from January 1, 2011 through June 30, taxable income, computed by using the tax tables, 2011 and decreased to 6.0 percent for July 1, 2011 tax rate schedules, Schedule D Tax worksheet, through December 31, 2011. Also for 2011, the foreign-earned income worksheet, Schedule J rate for the employee portion of social security tax (Income averaging for farmers and fishermen), was reduced to 4.2 percent from 6.2 percent. or Form 8615, plus Form(s) 8814 (line 44a), any additional taxes from Form 4972 (line 44b), 962 Income Subject to Tax election (line 44c) and the alternative minimum See “Modified Taxable Income.” tax (line 45). (See also “Tax Generated.”)

Income Tax After Credits ∆ Income Tax Withheld (line 55 minus part or all of line 64a, 66, 67, 71a, (line 62, Form 1040) 71b, 71c, and 71d Form 1040) Income tax withheld included amounts To arrive at income tax after credits, taxpayers deducted from salaries, wages, and tips, as reported deducted total credits (line 54, Form 1040) from on Form W-2; deducted from pensions, annuities, income tax before credits (line 46, Form 1040). and certain gambling winnings as reported on For these statistics, tax was further reduced by Forms 1099-R and W-2G; and withheld from the portion of the earned income credit, first- distributions of profit-sharing, retirement plans, time homebuyer credit, refundable prior-year and individual retirement accounts, as reported on minimum tax credit, American opportunity credit, Form 1099-R. adoption credit, health coverage credit, and the In some cases, a backup withholding rate of regulated investment company credit which 28 percent was required for interest, dividend, did not result in a negative tax. The portion of and royalty payments which, generally, were not the earned income credit, first-time homebuyer subject to withholding. credit, refundable prior-year minimum tax credit, American opportunity credit, adoption credit, health coverage credit, and the regulated 170 Individual Returns 2011

Individual Retirement Arrangement traditional IRA was eliminated if the distributions (Deductible) Payments ∆ were used for qualified higher education (line 32, Form 1040) expenses. This additional tax was also eliminated on distributions up to $10,000 from traditional or An individual retirement arrangement (IRA) Roth IRA’s if the distributions were used to buy, is a savings program that generally allows a build, or rebuild a qualified first home. A taxpayer taxpayer to set aside money for retirement. In was able to exclude from income, a qualified addition to the traditional IRA, there were two funding distribution made from an IRA to an other plans available: the education IRA and the HSA. Payments to an IRA for a particular taxable Roth IRA. Information on these two IRA’s can be year had to be made no later than the due date found under their separate headings. of the individual’s return for that year. (See also Taxpayers not covered by an employment “Roth IRA” and “Education IRA.”) retirement plan may have been able to deduct all contributions to a traditional IRA. For taxpayers covered by a retirement plan at work, the traditional Individual Retirement Arrangement IRA deduction phased out between $90,000 and Taxable Distributions $110,000 of modified AGI for married persons (line 15b, Form 1040) filing jointly and surviving spouses; between Any money or property received from $56,000 and $66,000 for single filers, heads of a taxpayer’s IRA account was considered a households, or married filing separately taxpayers distribution and, generally, had to be included in living apart; and between $0 and $10,000 the taxpayer’s total income in the year received. for married filing separately taxpayers living Exempted from this rule were tax-free roll- together. If one spouse was an active participant over distributions from one retirement account in an employer plan, but the other was not, the to another, distributions where the payout deduction for the IRA contribution of the spouse represented previously taxed non-deductible IRA not covered by an employer plan phased out contributions, distributions from a Roth IRA, between modified AGI of $169,000 and $179,000. distribution made to the taxpayers HSA account, Deductible contributions could be subtracted from and distributions from an IRA made directly by the employee’s total income in arriving at adjusted the trustee to a qualified charitable organization gross income. if the taxpayer was at least 70 ½ when the Contributions to an IRA (whether or not it was distribution was made. If a taxpayer converted deductible) were limited to the lesser of: (a) the from a traditional IRA to a Roth IRA, the taxpayer individual’s taxable compensation for the year, or was required to include in gross income the (b) $5,000 ($6,000, if age 50 or older). Married amount that would have been reported in income couples filing a joint return could contribute up to if a withdrawal from this IRA had been made. $5,000 ($6,000, if age 50 or older) to each spouse’s The taxpayer did not include in gross income any IRA, even if one spouse had minimal or no part of the conversion that was a nondeductible compensation. Therefore, the total combined IRA contribution in a traditional IRA. contributions could be up to $10,000 ($12,000, if Starting in 2010, the $100,000 modified AGI age 50 or older) for a year. limit on rollovers and conversions from eligible Unless they were disabled, taxpayers could retirement plans to Roth IRAs was eliminated. not start withdrawing funds from the traditional Also, married taxpayers filing separately were account until they reached age 59-1/2. After allowed to roll over or convert amounts to a Roth age 70-1/2, taxpayers were required to begin IRA. If a taxpayer converted or rolled over an withdrawals. Penalty taxes were assessed if the amount to a Roth IRA in 2010, half of the income taxpayer failed to comply with these limitations. realized from the rollover or conversion in 2010 The additional tax on early withdrawals from a could have been included in income in 2011 and Explanation of Terms 171 the other half in 2012. The taxpayer could also Investment Interest Expense Deduction have elected to have all of the income included in (line 14, Schedule A) 2010. See “Interest Paid Deduction.” and “Total Itemized Deductions.” Interest Paid Deduction (line 15, Schedule A, includes all lines 10-14) Itemized Deduction Limitation The rules for deducting home mortgage See “Total Itemized Deductions.” interest for 2011 were: (1) if a taxpayer took out a mortgage before October 13, 1987, secured by the Itemized Deductions taxpayer’s main or second home, all the interest See “Total Itemized Deductions” and specific was deductible, (2) if the taxpayer’s mortgage was itemized deductions. after October 13, 1987, and the funds were used to buy, build, or improve that home, all interest could be deducted if the total of all mortgages Limited Miscellaneous Deductions on the property was $1 million or less ($500,000 (lines 21-27, Schedule A) if married filing separately), and (3) taxpayers Certain taxpayer expenses could be deducted could deduct all of the interest on an additional on Schedule A, but were limited to the amount $100,000 ($50,000 if married filing separately) exceeding 2 percent of adjusted gross income. of mortgages on their main or second home other These included: unreimbursed employee business than to buy, build, or improve that home. expenses (including qualifying educational Generally, investment interest (interest paid expenses), tax preparation fees, expenses paid to on money borrowed that is allocable to property produce or collect taxable income, and expenses held for investment) was fully deductible up to the paid to manage or protect property held for earning amount of net investment income. Beginning in income (including safe deposit boxes). 1993, the net investment income that was to be compared to investment interest could not include Long-Term Loss Carryover any net capital gains that were taxed on the capital (line 14, Schedule D) gain tax rates or qualified dividends. Interest Long-term capital losses from the prior year relating to business, royalty, and rental income Schedule D that are not included in taxable income was deducted directly from these items and was are carried over to the current year. (See “Sales of not reflected in the interest paid statistics. Capital Assets, Net Gain or Loss.”) Taxpayers could deduct mortgage insurance premiums for mortgage insurance contracts issued after December 31, 2006. They also could include Marginal Tax Rates in interest deductible points, which were points Marginal tax rate as cited in this publication not reported on Form 1098. is the highest statutory rate on taxable income. It includes ordinary tax rates and capital gains tax Interest Received rates. This concept does not include the effects of AMT or tax credits. Also, for some taxpayers, See “Taxable Interest Received.” the statutory marginal tax rate may differ from the effective marginal tax rate. For example extra Interest, Tax-Exempt income received by certain taxpayers resulted See “Tax-Exempt Interest.” in the phase-out of deductions and credits (i.e. tuition and fees deduction, education credit, etc.). Therefore, an extra $1 of income could have added more than $1 of taxable income. While this taxpayer could face a statutory marginal tax rate 172 Individual Returns 2011 of 35 percent, the effective marginal rate faced by they were for insulin. Taxpayers could deduct the taxpayer would be somewhat higher. (See also costs for transportation to obtain medical care “Tax Generated.”) and also a maximum of $50 per day for certain lodging expenses incurred while traveling to Marital Filing Status obtain medical care. (See also “Total Itemized (lines 1-5, Form 1040) Deductions.”) The five marital filing status classifications were: Medical and Dental Expenses Limitation (1) single persons (not heads of (line 3, Schedule A) household or surviving spouses); See “Medical and Dental Expenses Deduction” (2) married person filing jointly; and “Total Itemized Deductions.” (3) married person filing separately; (4) heads of household; and Medical Savings Account Deduction (5) surviving spouses. See “Archer Medical Savings Account Marital filing status was usually determined as Deduction.” of the last day of the tax year. The exception was if a spouse died during the tax year, the surviving spouse was considered married for the entire year. Minimum Tax Credit If a taxpayer was divorced during the tax year and (line 53b, Form 1040) did not remarry, the taxpayer was considered to be See “Prior-Year Minimum Tax Credit.” unmarried for the entire year. Surviving spouse status could only be used by those taxpayers with Miscellaneous Deductions Other Than a qualifying dependent whose spouse died in 2009 Gambling or 2010. (included in line 28, Schedule A) Other fully deductible expenses included such Medical and Dental Expenses items as impairment-related work expenses for (line 1, Schedule A) disabled persons, and amortizable bonds. (See See “Medical and Dental Expenses also “Miscellaneous Itemized Deductions” and Deduction.” “Total Itemized Deductions.”)

Medical and Dental Expenses Deduction Miscellaneous Deductions Subject to 2% (lines 1-4, Schedule A) AGI Limitation Qualified medical expenses included (lines 21-27, Schedule A) nonreimbursed payments made for the diagnosis, See “Limited Miscellaneous Deductions” and treatment, or prevention of disease, or for medical “Miscellaneous Itemized Deductions.” or dental insurance. However, taxpayers who took the self-employed health insurance adjustment Miscellaneous Itemized Deductions had to reduce their total premium deduction by the (lines 21-28, Schedule A) amount of the adjustment (see “Self-Employed Health Insurance”). In general, medical and Miscellaneous itemized deductions were dental expenses could be claimed as an itemized divided into two types. The first, such as employee deduction to the extent that they exceeded 7.5 business expenses, included those items that were percent of adjusted gross income. Amounts paid limited to the amount exceeding 2 percent of for medicine and drugs were deductible only adjusted gross income, while other deductions, if they were available by prescription only, or such as gambling losses not in excess of gambling winnings, and casualty and theft losses of income Explanation of Terms 173 producing property were fully deductible. (See moving expenses in the calculation of adjusted also “Gambling Loss Deduction,” “Limited gross income as a statutory adjustment. To qualify Miscellaneous Deductions,” and “Miscellaneous for this deduction, the new work place had to be Deductions Other Than Gambling.”) at least 50 miles farther from the former residence than the former work place. Deductible expenses Modified Taxable Income included those incurred to move household and “Modified taxable income” is the term used personal goods, and travel including lodging en to describe “income subject to tax,” the actual route to the new residence. Expenses no longer base on which tax is computed for the statistics in deductible included: meals while moving from the Tables 3.4 , 3.5, and 3.6. For most taxpayers filing old residence to the new residence; travel expenses current year returns, modified taxable income is for pre-move house hunting trips; expenses while identical to “taxable income.” For those returns occupying temporary quarters in the area of the with a Form 8814, Parents’ Election To Report new ; and qualified residence sale, purchase, Child’s Interest and Dividends attached, modified and lease expenses. This adjustment was taxable income includes the sum of all children’s calculated using Form 3903 interest and dividend income taxed at a 10 percent rate, as well as the parent’s taxable income. Net Long-Term Capital Gain or Loss For prior year returns included in the 2011 (line 15, Schedule D) statistics, a modified taxable income was calculated These include gains or losses from sales of by using the tax rate schedule for 2011 to impute a capital assets, gains or losses from other forms, hypothetical taxable income amount necessary to and gains or losses from partnership/s-corporation yield the given amount of tax reported. held more than one year, less any long-term loss In most cases, a person who has no tax will carryover. (See also “Sales of Capital Assets, Net have no modified taxable income. Since the tax Gain or Loss.”) rate schedule is used to generate the modified taxable income, it is possible for a person to have up to four dollars of taxable income but have no Net Long-Term Gain or Loss from Other modified taxable income because the tax reported Forms would be zero. The exception is for certain (line 11, Schedule D) taxpayers who only have income taxed at the long- The other forms include: term capital gains rates, and that income is less • Long-term gains from than the cutoff for the beginning of the 25 percent Forms 4797, 2439, and 6252; tax bracket. In this case, the taxpayer would have • Long-term gain or loss from Forms no tax and would have modified taxable income 4684, 6781, and 8824 that was taxed at 0 percent. See “Sales of Capital Assets, Net Gain or Loss.” Mortgage Interest Credit (line 53c, Form 1040) Net Long-Term Gain or Loss from Taxpayers could claim this credit only if they Partnership/S-Corporation were issued a qualified Mortgage Credit Certificate (line 12, Schedule D) (MCC) by a state or local governmental unit. This See “Sales of Capital Assets, Net Gain or credit was calculated by using Form 8396. Loss,” also “Net Long-Term Capital Gain or Loss.” Moving Expenses Adjustment (line 26, Form 1040) Taxpayers deducted current-year qualified 174 Individual Returns 2011

Net Long-Term Gain or Loss from Net Short-Term Gain or Loss from Sales of Capital Assets ∆ Partnership/S-Corporation (line 8-10, Schedule D) (line 5, Schedule D) These include gains or losses from sales of See “Sales of Capital Assets, Net Gain or capital assets, such as stocks, bonds, mutual Loss,” also “Net Short-Term Capital Gain or funds, etc., held more than one year. New for Loss.” 2011, taxpayers had to report these transaction on Form 8949, Sales and Other Dispositions of Net Short-Term Gain or Loss from Sales Capital Assets, into three categories: Transactions ∆ reported on Form 1099-B with basis reported to of Capital Assets the IRS; transactions reported on Form 1099-B (line 1-3, Schedule D) but basis not reported to the IRS; or transactions These include gains or losses from sales without a Form 1099-B. See “Sales of Capital of capital assets, such as stock, bonds, mutual Assets, Net Gain or Loss,” also “Net Long-Term funds, etc., held less than one year. New for Capital Gain or Loss.” 2011, taxpayers had to report these transaction on Form 8949, Sales and Other Dispositions of Capital Assets, into three categories: Transactions Net Operating Loss reported on Form 1099-B with basis reported to (included in line 21, Form 1040) the IRS; transactions reported on Form 1099-B Net operating loss was the excess loss of a but basis not reported to the IRS; or transactions business when taxable income for a prior year was without a Form 1099-B. See “Sales of Capital less than zero. The loss could be applied to the Assets, Net Gain or Loss,” also “Net Short-Term AGI for the current year and carried forward up Capital Gain or Loss.” to 20 years. (See also “Other Net Income or Net Loss.”) Nondeductible Passive Losses (calculated on Form 8582) Net Short-Term Capital Gain or Loss Nondeductible passive losses were calculated (line 7, Schedule D) by subtracting deductible passive losses reported These include gains or losses from sales of on Form 8582 (line 16) from total current year capital assets, gains or losses from other forms, passive losses (lines 1b+2a+3b) and were limited and gains or losses from partnership/s-corporation to zero. held less than one year, less any short-term loss carryover. (See also “Sales of Capital Assets, Net Nontaxable Combat Pay Election Gain or Loss.”) (line 64b, Form 1040, 4b Form 8812) For Tax Year 2011, members of the U.S. Net Short-Term Gain or Loss from Armed Forces who served in a combat zone could Other Forms have excluded certain pay from their income. The (line 4, Schedule D) qualified taxpayer’s entitlement to the pay must The other forms include: have been fully accrued in a month during which • Short-term gains from Form 6252 they served in a combat zone or were hospitalized • Short-term gain or loss from Forms because of wounds, disease, or injury incurred 4684, 6781, and 8824 while serving in the combat zone. However, this See “Sales of Capital Assets, Net Gain or nontaxable pay was used to gain benefits for both Loss.” the EIC and additional child tax credit purposes. Explanation of Terms 175

Nontaxable Returns foreign housing exclusions were included in See “Taxable and Nontaxable Returns.” other income (as a negative amount). Gambling earnings and cancellation of debt, which were Nonrefundable Education Credits entered on this line by the taxpayer, were also (line 49, Form 1040) edited into a separate field during service center processing. See “Education Credits.”

One-Half of Self-Employment Tax Other Limited Miscellaneous Deductions (line 23, Schedule A) See “Deductible part of Self-Employment Tax.” See “Limited Miscellaneous Deductions”

Ordinary Dividends Other Payments (line 9a, Form 1040) (line 71, Form 1040) See “Dividends.” See “Credit from Regulated Investment Companies,” “Qualified adoption expenses Other Adjustments credit,” “Refundable Prior-Year Minimum Tax (included in line 36, Form 1040) Credit,” and “Health Coverage Credit” (formally known as Health Insurance Credit). See “Statutory Adjustments.” Other Tax Credits Other Income Less Loss (included in lines 53c, 54, Form 1040) See “Other Net Income or Net Loss.” “Other tax credits” is a residual category in the Other Net Income or Net Loss statistics. It includes other miscellaneous credits (line 21, Form 1040) that did not belong in any other category and were used to offset income tax before credits. Included in other income were items such as taxable distributions from a Coverdell education savings account, distributions from qualified Other Taxes tuition programs (though some may be excluded (line 60, Form 1040) if not more than the taxpayer’s qualified higher See “All Other Taxes.” education expenses), taxable distributions from health savings accounts or Archer MSA’s, prizes, Other Taxes Deduction ∆ awards, jury duty fees, Alaska permanent fund (line 8, Schedule A) dividends, alternative trade adjustment assistance Other taxes consisted of any deductible tax payments, reimbursements for medical expenses, other than state and local income taxes, real estate real estate taxes, or home mortgage interest taken taxes and personal property taxes. One example is as a deduction in a previous year, children’s interest taxes paid to a foreign country or U.S. possession. and non-qualified dividends from Form 8814, (See also “Taxes Paid Deduction.”) and any other income subject to tax for which no specific line was provided on the return form. Any foreign-earned income exclusions or “net Other than Cash Contributions operating loss” in an earlier year (that was carried (line 17, Schedule A) forward and deducted for 2011) were entered as a See “Contributions Deduction.” negative amount on this line by the taxpayer but edited into separate fields during service center processing. However, any employer-provided 176 Individual Returns 2011

Overpayment Partnerships and S Corporations (formerly (line 73, Form 1040) Subchapter S Corporations) are not taxable entities; therefore, tax on their net profit or loss was An overpayment of tax occurred when “total levied, in general, directly on the members of the tax payments” exceeded “total tax.” Overpayments partnership or shareholders of the S Corporation. included the amount of any “refundable portion,” The profit or loss shown in the statistics was the of the refundable credits. An overpayment could taxpayer’s share of the ordinary gain or loss of be refunded or credited toward the estimated tax the enterprise, and certain payments made to the for the following year. (See also “Credit to 2012 taxpayer for the use of capital or, for partnership, as Estimated Tax” and “Refund.”) . Net long-term capital gains received from partnerships and S Corporations were reported on Overpayment Refunded Schedule D. (line 74a, Form 1040) If a return showed net income from one See “Overpayment” and “Refund.” partnership or S Corporation and a net loss from another, the two were added together, and the Parents’ Election to Report Child’s return was tabulated by the net amount of income or loss in the appropriate column. Beginning Interest and Dividends in 1987, net income and net loss were reported (calculated on Form 8814) separately for passive and non-passive partnership A parent could elect to report on his or her and S Corporation activities. Passive losses were return income received by his or her child. If the limited under new rules to the amount that could election were made, the child was not required to offset passive income. file a return. A parent could make this election if the child: • was under age 19 (or under 24 if full time Partnership and S Corporation Net student) on January 1, 2012; Income Less Loss • had income only from interest and dividends See “Partnership and S Corporation Net including Alaska permanent fund dividends, Income or Loss.” and capital gain distributions; • had gross income for 2011 that was more Passive Activity Losses than $950 but less than $9,500; Losses generated by any “flow-through” • did not file a joint return; business activity (such as partnerships or S • had no estimated tax payments for 2011; Corporations for which profits and certain other • did not have any overpayment of tax shown amounts were passed directly through to the on his or her 2010 return applied to the owners), in which the taxpayer did not “materially 2011 return; and participate” (i.e., was not involved regularly and • had no Federal income tax withheld from substantially in the operations of the activity) his or her income (backup withholding). qualified as passive activity losses. (See also If the parents were not filing a joint return, “Nondeductible Passive Losses.”) special rules applied to determine which parent could make the election. (See also “Modified Payments to a Keogh Plan Taxable Income” and “Other Net Income or Net (line 28, Form 1040) Loss.”) Self-employed individuals were allowed to contribute to a Keogh retirement plan or a Partnership and S Corporation Net simplified employment pension plan and to deduct Income or Loss all or part of such contributions in computing (line 32, Schedule E) Explanation of Terms 177 adjusted gross income. The deductible amount an employer, while annuities are income payable was based on net earnings from self- employment. at stated intervals after payment of a specific premium. A taxpayer could acquire a pension or Payment with Request for Extension of annuity either by purchase from a commercial Filing Time organization (usually , endowment, or annuity contracts) or under a plan or contract (line 68, Form 1040) connected with the taxpayer’s employment. Those This payment was made when the taxpayer pensions or annuities obtained in connection with filed Form 4868, Application for Automatic employment could be purchased entirely by the Extension of Time to File U.S. Individual Income taxpayer, or financed in part (a contributory plan) Tax Return. The extension granted the taxpayer or in whole (a non-contributory plan) through additional time to file a tax return, but did not employer contributions. extend the time for paying the expected tax. Full Since a non-contributory plan was paid for payment of any tax due had to be made with the entirely by an employer, the amount received by application for extension. the employee was fully taxable. This fully taxable pension was reported on lines 16a and 16b. For Penalty on Early Withdrawal of Savings the taxpayer who participated in a contributory (line 30, Form 1040) retirement plan while employed, the amount Taxpayers who paid penalties for the premature received was only partially taxable. In general, withdrawal of funds from time savings accounts the amount excludable from gross income, the or deposits could deduct those penalties as an nontaxable portion, represented the taxpayer’s adjustment to total income. contributions under the plan, while the taxable portion represented the employer’s contribution and earnings on the entire investment. The Penalty Tax on Qualified Retirement nontaxable contribution had to be amortized over Plans the expected lifetime of the taxpayer. (line 58, Form 1040) The entire amount of pensions and annuities If taxpayers withdrew any funds from an received for the year was reported on line 16a of Individual Retirement Arrangement or qualified Form 1040. The taxable portion was computed on retirement plan before they were either age 59- a separate worksheet and entered on line 16b. 1/2 or disabled, they were subject to a penalty tax equal to 10 percent of the premature distribution. Personal Property Taxes Deduction Any taxpayer who failed to withdraw the (line 7, Schedule A) minimum required distribution after reaching age Personal property tax could be included as a 70-1/2 had to pay a 50 percent excise tax on the deduction if the tax was an annual tax based on excess accumulation. Contributions to an IRA value alone. (See also “Taxes Paid Deduction.”) in excess of the legal limitation for the year (the lesser of $5,000, $10,000 if married filing jointly, or the taxpayer’s compensation for the year) were Predetermined Estimated Tax subject to an excise tax equal to 6 percent of the Penalty excess contribution. (line 77, Form 1040) If a return showed taxes of $1,000 or more Pensions and Annuities owed on line 76 (tax due at time of filing) and (lines 16a, 16b, Form 1040) this amount was more than 10 percent of the total Generally, pensions are periodic income tax, the taxpayer could owe a penalty, unless tax received after retirement for past services with payments in the current year equaled or exceeded prior-year tax liability. Also, taxpayers could owe 178 Individual Returns 2011 a penalty if they underpaid their 2011 estimated AGI between $100,000 and $109,000 ($50,000 tax liability for any payment period. Form 2210 and $54,500 for married filing separately). This was used to determine the amount of a penalty, if amount was reported on Schedule A, line 13. any. For this report, the predetermined estimated Qualified Plug-In Electric Vehicle Credit tax penalty includes only the amount calculated by (line 53c, Form 1040) the taxpayer when the return was initially filed. Taxpayers could have claimed this credit for any non depreciable qualified plug-in electric Prior-Year Minimum Tax Credit vehicle placed in service during the tax year. A A minimum tax credit could be taken for qualified plug-in electric vehicle is generally any 2011 by certain taxpayers who paid alternative vehicle that is propelled to a significant extent minimum tax for 2010 or prior years. If all of the by an electric motor that draws electricity from minimum tax credit (claimed on Form 8801) could a battery that can be recharged from an external not be used for 2011, the excess could be carried source. This credit was calculated by using Form forward to later years. A refundable credit was 8936. available to taxpayers with a credit carryforward from 2008 or earlier. (see also “refundable prior- Real Estate Taxes year minimum tax credit.”) (line 6, Schedule A) See “Minimum Tax Credit.” This amount included taxes paid on real Qualified Dividends estate that was owned and not used for business (line 9b, Form 1040) by the taxpayer. The real estate taxes could only be used as a deduction if the taxes were based See “Dividends.” on the assessed value of the property. Also, the assessment had to be made uniformly on property Qualified Electric Vehicle Credit throughout the community, and the proceeds had (line 53c, Form 1040) to be used for general community or governmental Taxpayers could have claimed part I of this purposes. (See also “Taxes Paid Deductions”). credit for certain two- or three-wheeled vehicles or low-speed four-wheeled plug-in electric vehicles. Recapture Taxes Taxpayers could have also claimed part II of this (included in line 60, Form 1040) credit if they had any qualified electric vehicle The investment tax credit provisions of the law passive activity credits from prior years that are included a recapture rule which required taxpayers allowed for the current tax year. This credit is to pay back some or all of any investment credit calculated on Form 8834. previously taken on property disposed of before the end of the useful life claimed in computing Qualified Mortgage Insurance the credit. The law specified that if property Premiums qualifying for the credit was disposed of before (line 13, Schedule A) the end of its useful life, the tax for the year of Taxpayers may have been able to treat disposal was increased by the difference between mortgage insurance premiums paid in connection the credit originally claimed and the credit that with home acquisition debt as home mortgage would have been allowed based on the shorter interest. Taxpayers could deduct mortgage actual life. Tax credits could not be applied against insurance premiums for mortgage insurance this additional tax. Also, tax from recapture of contracts issued after December 31, 2006. The an education credit, the low income housing deduction was phased out for taxpayers with credit, qualified plug-in electric vehicle credit, the Explanation of Terms 179

Indian employment credit, the new markets credit, credit for part or the entire unused amount, even credit for employer provided child care facilities, if the total amount of the 2011 credit exceeded alternative motor vehicle credit, the alternative the tax liability amount. For these statistics, the fuel vehicle refueling credit and the qualified plug- refundable prior-year minimum tax credit was in electric drive motor vehicle credit, recapture of divided into three parts: the amount used to offset federal mortgage subsidy and COBRA premium income tax before credits; the amount used to assistance were reported here. offset all other taxes; and the refundable portion.

Refund Regular Tax Computation (line 74a, Form 1040) Typically, the taxpayer, in determining the A tax refund included all overpayment of amount of “tax generated,” first computed taxable income taxes not applied by the taxpayer as a income. Depending on marital status and size of credit to the next year’s estimated tax. (See also taxable income, the taxpayer then used the tax “Overpayment.”) table or applied the rates from one of four tax rate schedules to determine tax. Also, returns of taxpayers who had taxes computed by the Internal Refundable Credits Revenue Service were classified under the regular Refundable credits were separated into three tax computation method. If a taxpayer filed a categories for their treatment on income tax for Form 8615 or had any long-term capital gains, or the statistics. The first category was the portion qualified dividends taxed at a rate less than the tax of the credit used to offset income tax before tables, then they were not considered as regular credits. If there was any unused credit amount tax computations. after offsetting income tax, the next portion offset all other taxes. Any remaining amount, after offsetting all other taxes, was put into the Rent Net Income or Net Loss last category called the refundable portion. A (line 21, columns A,B,C, Schedule E) taxpayer claiming these credits could potentially Rent net income or loss was determined have those credits broken down into one, two, by deducting from gross rent, the amounts for or all three of these categories. For 2011, credits depreciation, repairs, improvements, interest, broken down this way included the EIC, first-time taxes, commissions, advertising, utilities, homebuyer credit, American opportunity credit, insurance, janitorial services, and any other adoption credit, health coverage credit, regulated allowable expenses related to the rented property. investment company credit and refundable prior- In these statistics, total rental net loss includes year minimum tax credit. passive losses that were not deductible in figuring AGI. (See also “Passive Activity Losses” and Refund Credited to Next Year “Total Rent and Royalty Income or Loss in AGI.”) (line 75, Form 1040) See “Credit to 2012 Estimated Tax.” Rent Net Income Less Loss See “Rent Net Income or Net Loss.” Refundable prior-year minimum tax credit Residential Energy Credits ∆ (line 71c, Form 1040) (line 52, Form 1040) A refundable credit was available to a The residential energy credit consisted of taxpayer who had any unused minimum tax credit the nonbusiness energy property credit and the carryforward from 2008 or earlier years. The residential energy efficient property credit. For taxpayer could have qualified for the refundable the nonbusiness energy property credit, taxpayers 180 Individual Returns 2011 were able to take a credit of 10 percent of the separately and not living with their spouse at any costs paid or incurred in 2011 for qualified energy time during the year) with modified AGI between efficient improvements and residential energy $107,000 and $122,000. Roth IRA contributions property. New for 2011, the nonbusiness credit could be made after the taxpayer reached the age was limited to a lifetime total of $500. For the of 70½. Also, the minimum distribution rules residential energy efficient property credit, did not apply to living taxpayers as they did for taxpayers could have taken a credit of 30 percent traditional IRAs. of their costs of qualified solar electric property, Starting in 2010, all taxpayers (including solar water heating property, small wind energy married taxpayers filing separately) were eligible property, geothermal heat pump property, and fuel to make taxable rollovers of traditional IRAs to cell property. Roth IRAs without paying the 10 percent tax on early withdrawals. When a taxpayer converted Retirement Savings Contribution an amount from a traditional IRA to a Roth IRA, Credit (Saver's Credit) they were required to include in gross income the amount that they would have reported in (line 50, Form 1040) income if they had made a withdrawal from A taxpayer could take a credit of up to $1,000 this IRA. The taxpayer did not include in gross ($2,000 if married filing jointly) for qualified income any part of the conversion that was retirement savings contributions, if their adjusted a nondeductible contribution in a traditional IRA. gross income was less than or equal to $28,250 If a taxpayer converted or rolled over an amount ($42,375 if head of household, $56,500 if married to a Roth IRA in 2010, half of the income realized filing jointly). This credit was calculated by using from the rollover or conversion could have been Form 8880. included in income in 2011, and the other half in 2012. The taxpayer could also have elected to Roth IRA ∆ have all of the income included in 2010. (lines 16-48, Form 8606) (See also “Individual Retirement Arrangement Similar to traditional IRAs, Roth IRAs were Taxable Distributions.”) generally used for retirement. Unlike traditional IRAs, contributions to a Roth IRA were not Royalty Net Income or Net Loss deductible. However, qualified distributions from (line 21, columns A, B, C, Schedule E) a Roth IRA were tax-exempt. The contribution Net royalties consisted of gross royalties less limit for Roth IRAs was the lesser of $5,000 deductions for depletion, depreciation, office rent, ($6,000 if age 50 or older), $10,000, ($10,000, legal fees, clerical help, interest, taxes, and similar or $12,000 depending whether none, one, or items. Gross royalties included revenues from two of the taxpayers were age 50 or older and oil, gas, and other mineral rights; revenue from married filing jointly) or the individual’s taxable patents; and revenue from literary, musical, or compensation, unless the taxpayer contributed to artistic works. Certain royalties received under a both Roth and traditional IRAs. In that case, the lease agreement on timber, coal, and domestic iron contribution limit for Roth IRAs was reduced by all ore were eligible for capital gains or ordinary loss contributions (other than employer contributions) treatment under Internal Revenue Code section to traditional IRAs for the taxable year. The 1231. As a result of the separate computation, eligibility for Roth IRAs was phased out for joint those royalties are reflected in the statistics for filers with modified AGI between $169,000 and “sales of capital assets” and “sales of property $179,000, married taxpayers filing separately other than capital assets.” (See also “Total Rent and living with their spouses with modified AGI and Royalty Income or Loss.”) between $0 and $10,000, and all other filers (single, head of household, and married filing Explanation of Terms 181

Royalty Net Income Less Loss Sales of Capital Assets, Net Gain or Loss See “Royalty Net Income or Net Loss.” (line 13, Form 1040) In general, capital assets for tax purposes S Corporations included all property held for personal use or See “Partnership and S Corporation Net investment. Examples include homes, furniture, Income or Loss.” automobiles, and stocks and bonds. Most assets used for business activities were specifically Salaries and Wages excluded from treatment as capital assets. (See also “Sales of Property Other Than Capital Assets, (line 7, Form 1040) Net Gain or Loss.”) Salaries and wages, as reported on the tax The following concepts are used in the return, were amounts of compensation primarily computation of net capital gain or loss for this for personal services. The following items were report: included: Long-term or short-term: If the holding period • salaries; was 1-year or less, the asset was considered short- • wages; term; otherwise, it was considered long-term. • commissions; All capital gain distributions (distributions from • bonuses; mutual funds on the profit of sale of stock or • tips; bonds to the taxpayer) were considered long-term. • fees; Short-term capital gains were taxed at ordinary • excess reimbursement of employee business rates. expenses; Net capital gain: If the combination of net • moving expenses allowances; short-term gain or loss and net long-term gain or • the difference between the fair market value loss resulted in a positive amount, the taxpayer of certain property and the discount price had a net capital gain. The full amount of this gain, for which it was purchased by a taxpayer whether short-term or long-term, was included in from his or her employer; adjusted gross income. • severance pay; Net capital loss: If the combination of net • sick pay; short-term gain or loss and net long-term gain or • the value of exercising a stock appreciation loss resulted in a negative amount, the taxpayer right; showed a net capital loss. The amount of net • directors’ fees; capital loss included in adjusted gross income • vacation allowances; was limited to the smaller of the actual net capital • most disability payments; loss or $3,000 ($1,500 for married persons filing • strike and lockout benefits; separately). Any excess capital losses over the • the value of certain non-monetary $3,000 limit could be carried over to subsequent payments for services (e.g., merchandise, tax years. (See “Long-term Loss Carryover” and accommodations, certain meals or lodging, “Short-term Loss Carryover.”) certain stock purchase plans, or property); The maximum rate for most long-term net • dependent care benefits; capital gains was 15 percent. For taxpayers in • employer provided adoption benefits; and the 15 percent ordinary income bracket or lower, • scholarship and fellowship grants. the capital gains rate was reduced to 0 percent. Identifiable amounts for any of these categories, Collectible gains and up to 50 percent of eligible which may have been reported by taxpayers as gains on qualified small business stock were taxed “other income,” are treated as salaries and wages at the 28-percent rate. Gains from the sale of for these statistics. certain depreciable real property were taxed at a 25-percent rate. Therefore, the long-term capital 182 Individual Returns 2011 gain tax rate could be 0 percent, 15 percent, 25 Saver’s Credit percent, or 28 percent. Taxpayers were generally See “Retirement Savings Contribution Credit.” able to exclude from income up to $250,000 ($500,000 for married couples filing a joint tax Schedule D Capital Gain Distributions return) of the gain on the sale of their homes. (line 13, Schedule D) See “Sales of Capital Assets, Net Gain or Sales of Capital Assets Reported on Loss.” Schedule D See “Sales of Capital Assets, Net Gain or Self-Employed Health Insurance Loss.” Deduction ∆ (line 29, Form 1040) Sales of Property Other Than Capital Self-employed persons, or owners of more Assets, Net Gain Less Loss than 2 percent of outstanding stock of an S (line 14, Form 1040) Corporation, if they were not eligible for health Property other than capital assets generally coverage under an employer-provided plan, were included property of a business nature, in contrast allowed to deduct, in the calculation of AGI, to personal or investment property, which were up to 100 percent of the amount paid for health capital assets. Some types of property specifically insurance for themselves and their families. included in this group were: For 2011, a taxpayer could no longer reduce (1) certain depreciable, depletable, and real their net self-employment income on Schedule SE business property; by the amount of self-employed health insurance (2) accounts and notes receivable in the deduction. ordinary course of business generated from the sale of goods and services ordinarily held Self-Employment Tax ∆ for sale by the business or includable in the (line 56, Form 1040) inventory of the business; (3) certain copyrights, literary, musical, or The ceiling for social security tax on taxable artistic compositions, or similar properties; self-employment income for 2011 was $106,800. and The limit did not apply for purposes of the (4) amounts resulting from certain “involuntary Medicare tax. All net earnings greater than $400 conversions,” including net losses from ($108.28 for church employees) were also subject casualty and theft. to the Medicare tax portion. Taxpayers reported all gains and losses not For 2011, the self-employment tax rate was treated as capital gains on Form 4797, Sales of reduced from 15.3 percent to 13.3 percent. The Business Property. Medicare portion of the self-employment tax remained at 2.9 percent, while the social security portion was reduced from 12.4 percent to 10.4 Sales Tax Deduction percent. Also for 2011, taxpayers could no (line 5b, Schedule A) longer reduce their net self-employment income Taxpayers could have elected to deduct state on Schedule SE by the amount of self-employed and local general sales taxes instead of state and health insurance deduction entered on line 29 of local income taxes as an itemized deduction on Form 1040. (See also “Total Tax Liability.”) Schedule A. The taxpayer could have used either actual expenses or the optional state sales tax Short-Term Loss Carryover tables. (line 6, Schedule D) These are short-term capital losses from the Explanation of Terms 183 prior year Schedule D that were carried over to the Social Security Benefits current year. (See “Sales of Capital Assets, Net (lines 20a, 20b, Form 1040) Gain or Loss.”) Social security benefits included any monthly benefit under title II of the Social Security Act or Size of Adjusted Gross Income the part of a “tier 1 railroad retirement benefit” (line 37, Form 1040) that was equivalent to a social security benefit. The amount of adjusted gross income reported Social security benefits were not taxable unless by the taxpayer on the return was the basis for the taxpayer’s total income (including tax-exempt classifying data by size of adjusted gross income. interest) plus one-half of total social security Returns without positive adjusted gross income, benefits exceeded certain levels. The maximum such as deficit returns or returns on which income taxable amount was up to 85 percent of the net and loss were equal, were classified as having “no social security benefits received. Social security adjusted gross income” and appear as a separate benefits received were reported on Form 1040, class in most basic tables. The absence of a class line 20a and the taxable portion was reported on labeled “no adjusted gross income” indicates that line 20b. Taxpayers were required to report gross any deficit or -even returns in a table were social security benefits on line 20a even if the included in the lowest income size class. (See taxpayer had no taxable social security benefits. “Adjusted Gross Income Less Deficit.”) Standard Deduction ∆ Social Security and Medicare Taxes ∆ (included in line 40, Form 1040) For 2011, the maximum wages subject to social For 2011, the basic standard deduction was security tax was$106,800. All wages were subject increased. Taxpayers who were age 65 or over or to Medicare tax. For 2011, the social security tax blind could claim an additional standard deduction decreased to 4.2 percent from 6.2 percent. The amount of $1,100 or $1,400 based on filing status. Medicare tax portion remained at 1.45 percent. Both the basic and additional standard deductions were determined by marital filing status, as shown Social Security and Medicare Tax on below. Single Unreported Tip Income Basic deduction of $5,800; (line 57a, Form 1040) Each taxpayer 65 or over or blind was allowed Cash tips amounting to $20 or more received by an additional $1,450 deduction each for age the taxpayer in a month while working for any one and blindness. employer were subject to withholding of income Married filing jointly or surviving spouses tax, social security tax (or the equivalent railroad Basic deduction of $11,600; retirement tax), and Medicare tax. If the employer Each taxpayer 65 or over or blind was allowed was unable to withhold the social security and an additional $1,150 deduction each for age Medicare tax, the amount of uncollected social and blindness. security tax on tips was indicated on the employee’s Married, filing separately Form W-2, and the employee was required to Basic deduction of $5,800; report the uncollected tax and pay it with the Form Each taxpayer 65 or over or blind was allowed 1040. If the employee did not report the tips to the an additional $1,150 deduction each for age employer, the employee was required to compute and blindness. the social security and Medicare tax on unreported Head of Household tips on Form 4137 and attach it to Form 1040. Basic deduction of $8,500; Each taxpayer 65 or over or blind was allowed an additional $1,450 deduction each for age 184 Individual Returns 2011

and blindness. expenses of reservists, performing artists, and fee- The basic standard deduction claimed by filers basis government officials, health savings account who were dependents of other taxpayers was the deduction, moving expenses, the deduction for one- greater of $950 or the dependent’s earned income half of self-employment tax, payments to a self- plus $300 (but not more than the regular standard employed Keogh retirement plan or a simplified deduction amount). employee pension (SEP), the self-employed health In these statistics, the basic standard deduction insurance deduction, penalty on early withdrawal is tabulated for all taxpayers who claimed it, of savings, alimony paid, payments to an IRA, including those who were 65 or over and/or blind. student loan interest deductions, tuition and The “additional standard deduction” total includes fees deductions, deduction for certain domestic only the additional amount that was taken by those production activities, Archer MSA deductions, taxpayers who were 65 or over and/or blind. and the foreign housing deduction. Each of the above items is described separately in this section. State and Local Income Taxes In addition, statutory adjustments included: jury (line 5a, Schedule A) duty pay, deductible expenses related to income of personal property, the forestation/reforestation State and local income taxes paid could be used amortization deduction, the repayment of as an itemized deduction if a taxpayer had state supplemental under the and local income tax withheld from their salary Trade Act of 1974, contributions to section 501(c) during 2011; had paid state and local income taxes (18(D) pension plans, contributions by certain directly during 2011 for a prior year, or had made chaplains to section 403(b) plans, attorney fees mandatory contributions to specific state disability and court costs paid for actions involving certain funds. (See also “Taxes Paid Deduction.”) unlawful discrimination claims, and attorney fees and court costs paid in connection with an State and Local Taxes award from the IRS for information provided that (line 5, Schedule A) helped the IRS detect tax law violations. If not This is the total of State and Local Income listed separately, these amounts are included in Taxes or Sales Tax Deduction. The taxpayer the “Other Adjustments” category in the statistics. could elect to use either, but not both. Student Loan Interest Deduction State Income Tax Refund (line 33, Form 1040) (line 10, Form 1040) For 2011, eligible taxpayers were allowed If a taxpayer received a refund, credit, or to deduct up to $2,500 for interest paid on offset of state or local income taxes in 2010 that qualified higher educational loans. The deduction was paid or deducted before 2010, all or part of was phased out for taxpayers with modified that amount had to be reported as income to the AGI between $60,000 to $75,000 ($120,000 to extent that an itemized deduction for state and $150,000 for taxpayers filing a joint return). local income taxes had previously resulted in a tax benefit. Tax Credits See “Total Tax Credits.” Statutory Adjustments (lines 23-36, Form 1040) Tax Due at Time of Filing Certain adjustments to total income were (line 76, Form 1040) allowed as deductions in the calculation of adjusted “Tax due” was reported on returns on which gross income. For 2011, statutory adjustments total tax liability exceeded total tax payments. included educator expenses, certain business Explanation of Terms 185

Tax from Recomputing Prior-Year 8615 (the remaining investment income was Investment Credit taxed at the child’s rate) and tabulated separately (included in line 60, Form 1040) in Tables 3.4, 3.5, and 3.6. If the parents elected to report the child’s investment income on their See “Recapture Taxes.” return, they attached a Form 8814. The investment income in excess of $1,900 was included on Tax Generated ∆ either Form 1040, line 21 or in the case of capital This amount was the tax computed on modified gains distributions on either Form 1040, line 13 taxable income. The tax rates for 2011 were 10, or Schedule D, line 13, or qualified dividends on 15, 25, 28, 33, and 35 percent. The 10-percent Form 1040, line 9b. The remaining investment bracket applied to taxable income equal to income in excess of the $950 standard deduction or below $8,500 for single filers and married was taxed at the child’s rate, added to the parents’ persons filing separately; $17,000 for joint filers tax on Form 1040, line 44, and is also tabulated or surviving spouses; and $12,150 for heads separately in Tables 3.4, 3.5, and 3.6. of household. The 15-percent bracket applied On most returns, except those with additional to taxable income in excess of the 10-percent taxes from special computations, “tax generated” bracket ceiling and equal to or below $34,500 for equaled “income tax before credits.” (See also single filers and married persons filing separately; “Modified Taxable Income”) $69,000 for joint filers or surviving spouses; and $46,250 for heads of household. The 25-percent ∆ tax bracket applied to taxable income in excess Tax Payments (lines 62, 63, 68, 69, 70, 71, and 72 Form 1040) of the 15-percent bracket ceiling and equal to or below $83,600 for single filers; $139,350 for joint These payments were generally made before filers or surviving spouses; $69,675 for married the return was filed and were applied against persons filing separately; and $119,400 for heads tax liability to determine any amount payable or of household. The 28-percent tax rate applied to refundable at the time of filing. They consisted of taxable income in excess of the 25-percent tax the following: bracket ceiling and equal to or below $174,400 for (1) income tax withheld, including backup single filers; $212,300 for joint filers or surviving withholding; spouses; $106,150 for married persons filing (2) estimated tax payments (including those separately; and $193,350 for heads of households. from overpayment on 2010 return); The 33-percent tax rate applied to taxable income (3) payment with request for extension of in excess of the 28-percent tax bracket ceiling filing time; and equal to or below $379,150 for single filers, (4) excess social security, Medicare, or joint filers, or surviving spouses and heads of railroad retirement tax withheld; households and $189,575 for married persons (5) credit for tax on certain gasoline, fuel, filing separately. The 35-percent tax rate applied and oil; and to taxable income in excess of the upper boundary Each of the above is described under a separate for the 33 percent tax bracket. The tax generated heading in this section. at each of these tax rates is shown in Tables 3.4, Although the earned income credit, American 3.5, and 3.6. opportunity credit, first-time homebuyer credit, If children under age 19, or under 24 if they adoption credit, health coverage credit, regulated were a full-time student, had investment income investment company credit, and the refundable that exceeded $1,900, there were two methods of prior-year minimum tax credit were included with reporting this income. If the child filed his or her tax payments on the tax return itself (line 63, 64a, own return, the investment income that exceeded 66, 67, 71a, 71b, 71c, and 71d, Form 1040), for $1,900 was taxed at the parents’ rate on Form the statistics it is treated partly as a credit against 186 Individual Returns 2011 income tax liability and partly as a refundable taxes, and the remaining ones were either based amount. (See also “Earned Income Credit,” on prior year’s income or were penalty taxes. “Education Credits,” “First-Time Homebuyer For this report, the earned income credit, Credit,” “Adoption Credit,” “Health Coverage American opportunity credit, first-time homebuyer Credit,” “Credit from Regulated Investment credit, adoption credit, health coverage credit, Companies,” and “Refundable Prior-Year regulated investment company credit and Minimum Tax Credit.”) Also, the additional child refundable prior-year minimum tax credit are credit (line 65), was included on the tax return as a treated first as an amount used to offset income tax payment but not treated that way for the statistics. before credits. Since they were refundable, they were subtracted from income tax (for the statistics) Tax Penalty after reduction by all other statutory credits. (line 77, Form 1040) As a result, some returns became nontaxable strictly because of the refundable credits and the See “Predetermined Estimated Tax Penalty.” refundable credits equaled or exceeded income tax before credits reduced by any other credits. Tax Preparation Fees It should be noted that classification as taxable (line 22, Schedule A) or nontaxable was based on each return as it was Tax preparation fees were included on filed and does not reflect any changes resulting Schedule A as a miscellaneous deduction, the total from audit or other enforcement activities. (See of which was subject to a 2 percent of AGI floor. also, “Total Income Tax.”) The amounts reported in the statistics are prior to this floor. (See also “Limited Miscellaneous Taxable Income Deductions.”) (line 43, Form 1040) Taxable income was derived by subtracting Tax Rates, Tax Rate Classes from adjusted gross income any exemption See “Tax Generated.” amount and either total itemized deductions or the standard deduction. (See “Modified Taxable Tax Withheld Income.”) (line 62, Form 1040) See “Income Tax Withheld.” Taxable Interest (Received) (line 8a, Form 1040) This amount was the taxable portion of interest Taxable and Nontaxable Returns received from bonds, debentures, notes, mortgages, The taxable and nontaxable classification of a certain insurance policy proceeds, personal loans, return for this report is determined by the presence bank deposits, savings deposits, tax refunds, and of “total income tax”. Some returns classified as U.S. savings bonds. Also included as interest “nontaxable” may have had a liability for other were “dividends” on deposits or withdrawable taxes, such as self-employment tax, uncollected accounts in mutual savings banks, savings and employee social security and Medicare tax on tips, loan associations, and credit unions. Interest on tax from recomputing prior-year investment credit, state or local government obligations remained penalty taxes on individual retirement accounts, tax-exempt, but the total tax-exempt interest had Section 72 penalty taxes, household employment to be reported on line 8b of Form 1040. It was not taxes, or golden parachute payments. These taxes, included in the taxpayer’s income for tax purposes. however, were disregarded for the purposes of this (See also “Tax-Exempt Interest.”) classification since three of the above taxes were considered social security (rather than income) Explanation of Terms 187

Taxable IRA Distributions Tax-Exempt Interest (line 15b, Form 1040) (line 8b, Form 1040) See “Individual Retirement Arrangement Tax-exempt interest included interest on Taxable Distributions.” certain State and municipal bonds, as well as any tax-exempt interest dividends from a mutual fund Taxable Net Capital Gain or other regulated investment company. This was an information reporting requirement and did not (line 16, Schedule D, included in line 13, Form convert tax-exempt interest into taxable interest. 1040) It is included as income for certain programs, for See “Sales of Capital Assets, Net Gain or example for the earned income credit or taxability Loss.” of social security benefits.

Taxable Net Capital Loss Total Income (line 21, Schedule D, included in line 13, Form (line 22, Form 1040) 1040) Total income was the sum of the individual See “Sales of Capital Assets, Net Gain or income items (lines 7 through 21) before Loss.” adjustments.

Taxable Pensions and Annuities Total Income Tax ∆ (line 16b, Form 1040) (line 55 + any Form 4970 tax on line 60 - line 64a See “Pensions and Annuities.” - line 66 - line 67 - line 71a - line 71b - line 71c - line 71d, limited to zero, on Form 1040) Taxable Social Security Benefits Total income tax was the sum of income tax (line 20b, Form 1040) after credits (including the subtraction of the earned income credit, American opportunity credit, first- See “Social Security Benefits.” time homebuyer credit, adoption credit, health coverage credit, regulated investment company Taxes Paid Deduction credit and the refundable prior-year minimum tax (lines 5-9, Schedule A) credit) plus the tax from Form 4970. It did not Taxes allowed as an itemized deduction include any of the other taxes that made up total from adjusted gross income, included personal tax liability. Total income tax was the basis for property taxes, state and local income taxes or classifying returns as taxable or nontaxable. general sales taxes, taxes paid to foreign countries or U.S. possessions (unless a foreign tax credit Total Itemized Deductions ∆ was claimed), and real estate taxes except those (included in line 40, Form 1040) levied for improvements that tended to increase the value of the property. Mandatory employee Itemized deductions from adjusted gross contributions to a state disability fund and income could be claimed for medical and dental employee contributions to a state unemployment expenses, certain taxes paid, interest paid, fund were also included. Federal taxes were not charitable contributions, casualty and theft deductible. Taxes paid on business property were losses, and miscellaneous deductions. Taxpayers deducted separately on the schedules for business, could deduct mortgage insurance premiums for rent, royalty, and farm income and are excluded mortgage contracts issued after December 31, from the “taxes paid” statistics in this report. 2006. Itemized deductions were claimed only if they exceeded the total standard deduction, with three exceptions. First, if a taxpayer was married 187 188 Individual Returns 2011 and filing separately, and his or her spouse Total Social Security Benefits itemized deductions, the spouse was required (line 20a, Form 1040) to itemize as well. Second, taxpayers in several See “Social Security Benefits.” states were required to itemize deductions on their Federal tax returns if they wished to itemize on Total Statutory Adjustments their State returns. Third, if a taxpayer benefited (line 36, Form 1040) for alternative minimum tax purposes, they might itemize even though the standard deduction was Total statutory adjustments was the sum of the larger. The total amount of itemized deductions individual adjustments to income (lines 23-36) was tabulated only from returns showing positive (Note: foreign housing, Archer MSA, and other adjusted gross income. adjustments were reported on line 36). Starting in 2010, high-income taxpayers no longer lost part of their itemized deductions as Total Tax Credits ∆ part of a phaseout, regardless of their AGI. For (lines 54, 64a, 66, 67, 71a, 71b, 71c and 71d Form tax year 2008 and 2009, the amount by which the 1040) deduction was reduced was only 1/3 of the original For this report, total tax credits consists of the reduction amount. For Tax Years 2006 and 2007, following: the amount by which the deduction was reduced (1) foreign tax credit; was only 2/3 of the original reduction amount (2) child care credit; that would have otherwise applied (for 2005 and (3) education credits; previous years). For 2011, the new motor vehicle (4) retirement savings contributions credit; tax deduction expired. (5) child tax credit; (6) mortgage interest credit; Total Miscellaneous Deductions (7) residential energy credits; See “Miscellaneous Itemized Deductions.” (8) general business credit; (9) minimum tax credit; Total Pensions and Annuities (10) credit for the elderly and disabled; (11) District of Columbia first time (line 16a, Form 1040) homebuyer credit; See “Pensions and Annuities.” (12) qualified plug-in electric drive motor vehicle credit; Total Rental and Royalty Net Income or (13) qualified plug-in electric vehicle credit; Loss (14) qualified electric vehicle credit; (line 26 plus lines 39 and 40, Schedule E) (15) alternative motor vehicle credit; This income concept consisted of all rent (16) alternative fuel vehicle refueling property and royalty income and loss that was used in credit; computing adjusted gross income, including farm (17) alternative motor vehicle credit; rental income and suspended rental loss carry- (18) other tax credits; over from prior years. It excluded the portion of (19) earned income credit (EIC) used to rental losses that was not deductible in computing offset income tax before credits; adjusted gross income due to the passive loss (20) American opportunity credit used to rules. Income or loss from real estate mortgage offset income tax before credits; investment conduits were also included in this (21) first-time homebuyer (FTHC) credit concept. used to offset income tax before credits; (22) adoption credit used to offset income tax before credits; (23) health coverage credit used to offset Explanation of Terms 189

income tax before credits; refundable (except the child tax credit, see “Child (24) regulated investment company credit Tax Credit.”) or used to offset any other taxes. used to offset income tax before credits; The making work pay credit expired for 2011. (24) refundable prior year minimum tax credit used to offset income tax before Total Tax Liability ∆ credits; (line 61 modified by the earned income credit, These amounts were deducted from income additional child tax credit, American opportunity tax before credits to arrive at income tax after credit, first-time homebuyer credit, adoption credits. For the statistics, the portion of the credit, health coverage credit, regulated investment EIC, American opportunity credit, FTHC, company credit and the refundable prior-year adoption credit, health coverage credit, regulated minimum tax credit, Form 1040) investment company credit and the refundable Total tax liability was the sum of income tax prior-year minimum tax credit that did not result in after credits, self-employment tax, social security a negative amount is tabulated as “earned income and Medicare tax on tip income and wages, penalty credit used to offset income tax before credits,” tax on qualified retirement plans, household “American opportunity credit used to offset employment taxes, repayment of the first-time income tax before credits,” “first-time homebuyer homebuyer credit, additional tax on HSA and MSA credit used to offset income tax before credits,” distributions, aditional tax on Medicare Advantage “adoption credit used to offset income tax before MSA distributions, tax from recapturing prior- credits,” “health coverage credit used to offset year investment credits, low income housing income tax before credits,” “regulated investment credit, qualified plug-in electric vehicle credit, company credit used to offset income tax before Indian employment credit, new markets credit, credits,” and “refundable prior-year minimum tax employer-provided child care facilities credit, credit used to offset income tax before credits.” alternative motor vehicle credit, alternative fuel Any remaining EIC, American opportunity vehicle refueling property credit, and the qualified credit, FTHC, adoption credit, health coverage plug-in electric drive motor vehicle credit, tax credit, regulated investment company credit and from recapture of federal mortgage subsidy refundable prior-year minimum tax credit amount COBRA premium assistance, Section 72 penalty could be refunded or applied to other taxes, and taxes, other unspecified taxes which included are classified separately as “earned income credit uncollected FICA (or social security) tax on tips, refundable portion,” “American opportunity credit tax on golden parachute payments, Form 4970 tax, refundable portion,” “first-time homebuyer credit excise tax on insider stock compensation from an refundable portion,” “adoption credit refundable expatriated corporation, additional tax on income portion,” “health coverage credit refundable from a nonqualified deferred compensation plan, portion,” “regulated investment company credit interest on tax due on installment income from refundable portion,” and “refundable prior-year sale of residential lots and timeshares, interest minimum tax credit refundable portion,” or on the deferred tax gain from certain installment “earned income credit used to offset other taxes,” sales, additional tax on recapture of a charitable “American opportunity credit used to offset other deduction relating to a fractional interest in tangible taxes,” “first-time homebuyer credit used to offset personal property, look-back interest, repayment other taxes,” “adoption credit used to offset other of ineligible advance payments of the health taxes,” “health coverage credit used to offset other coverage tax credit, and the statistics included tax taxes,” “regulated investment company credit used from recapture of education credits. These taxes to offset other taxes,” and “refundable prior-year were then reduced by the earned income credit minimum tax credit used to offset other taxes.” All used to offset all other taxes, additional child tax other credits were limited to the amount needed credit used to offset all other taxes, American to offset income tax before credits and were not opportunity credit used to offset all other taxes, 189 190 Individual Returns 2011 first-time homebuyer credit used to offset all other 1040, 1040A, or 1040EZ. Schedule J, Income taxes, adoption credit used to offset all other taxes, Averaging for Farmers and Fishermen, health coverage credit used to offset all other foreign-earned income exclusion and 962 taxes, regulated investment company credit used election returns are included with regular tax. to offset all other taxes and the refundable prior (See also “Regular Tax Computation”); year minimum tax credit used to offset all other (2) Form 8615, used to compute the tax on taxes, limited to zero. For the statistics, unlike the investment income of children under 19 (See Form 1040, total tax liability does not include any also table 3.1A); and advance earned income credit payments. (3) Schedule D, Form 1040, used to compute the tax on long-term capital gains (in excess Total Tax Payments of short-term capital losses.) These include See “Tax Payments.” returns with capital gain distributions reported on Form 1040 or qualified dividends, also. Total Taxable IRA Distributions This tax could be at various rates, 0, 15, 25, See “Individual Retirement Arrangement or 28 percent. Taxable Distributions.” Unemployment Compensation Total Unlimited Miscellaneous (line 19, Form 1040) Deductions All unemployment compensation received (line 28, Schedule A) was taxable. It did not include any supplemental See “Miscellaneous Itemized Deductions,” unemployment benefits received from a company- “Gambling Loss Deduction,” and “Miscellaneous financed supplemental unemployment benefit Deductions Other than Gambling.” fund, which were included in salaries and wages.

Tuition and Fees Deduction Unreimbursed Employee Business (line 34, Form 1040) Expenses A taxpayer was able to deduct up to $4,000 of (line 21, Schedule A) the qualified tuition and fees paid for themselves, This item, added together with most other a spouse, or dependents if the taxpayer’s modified miscellaneous itemized deductions, was subject AGI was under $65,000 ($130,000 if married to a floor of 2 percent of AGI. Unreimbursed filing jointly). A taxpayer was able to deduct up employee business expenses included travel, to $2,000 if their AGI was higher than the limit transportation, meal, and entertainment costs but not more than $80,000 ($160,000 if married incurred while based at or away from home in filing jointly). This deduction (calculated on the performance of job duties. In most cases, Form 8917) could not be taken if the person could fifty percent of meal and entertainment expenses be claimed as a dependent on another taxpayer’s were deductible, and were calculated on Form return or if they claimed the education credit for 2106, Employee Business Expenses. Many other the same student. expenses such as union dues, safety equipment, uniforms, protective clothing, and physical Type of Tax Computation examinations were also deductible. Travel (line 44, Form 1040) expenses away from home, which were paid Tabulations in Table 3.1 include three methods or incurred, were not deductible if the period of computing the tax on income subject to tax. of temporary employment was more than one These methods were: year. The amounts reported in the statistics were (1) Regular tax, as computed from the tax tables prior to the 2 percent floor. (See also “Limited or tax rate schedules accompanying the Forms Miscellaneous Itemized Deductions.”)