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Tax deal goodies for the middle class

Provisions on Coverdell accounts, capital gains, IRA gifts to charity and other extensions benefit those who are not rich.

By Teresa Mears Dec 15, 2010 8:02PM

This post is from Linda Stern at Reuters' Prism Money.

In December, President Obama and congressional Republicans reached a deal to preserve tax breaks created in the Bush adminstration. But the agreement isn’t all about tax cuts for the rich and unemployment bennies for the unfortunate. There are some sweet provisions in there for the vast middle, too. Dig deeper than the headline-grabbing rates (.PDF download), and you’ll find provisions that can help savers and investors, as long as they know how to make the most of them.


You’ve probably seen the big-picture provisions already (find them all in this Reuters factbox). 

Here are some details you may have missed, and what to do about them:

  • Coverdell accounts live another day. These college savings funds are actually better for most families than the most widely publicized 529 plans. They allow you to put away $2,000 a year per child in a plan you can usually direct yourself (without the additional fees of a state-run 529 plan). And you can use the money for elementary and high school expenses as well as college. That pre-college break was slated to sunset at the end of this year and contribution limits were scheduled to fall to $500 in 2011. The newest version of the tax bill extends Coverdells for two more years. That means you don’t have to rush to spend down your Coverdell or transfer it into a 529. You can keep building now and worry about spending it down in 2012, when Washington will have this fight again.
  • Two more years of a zero percent rate on some capital gains. It was originally seen as a one-year anomaly: The capital gains tax rate for folks in the 10% and 15% income tax brackets was zero for 2010. This bill extends that for two additional years, which means some serious planning opportunities for families. Families who support low-bracket relatives (they can be elderly parents or young adult kids over the age of 18; over 24 if they are students) can give them winning shares of stock instead of cash. The low-bracketers can sell the shares and pay nothing in gains taxes through 2012. It’s an economical way to help the starving grad students in the family.
  • Charity will pay off for older taxpayers. In 2009, taxpayers over 70 1/2 were allowed to send money directly from their Individual Retirement Accounts to charities without having to pay taxes on the amount they transferred. This was a big help to people who were required to take (and pay taxes on) mandatory distributions from their IRAs but didn’t have enough deductions to justify itemizing those charitable gifts. The new bill actually allows them to make that direct gift through Jan. 31, 2011, and have it cover their 2010 mandatory distribution. What if you’ve already taken your distribution? Call the company that holds your IRA; there’s got to be a paperwork-heavy way to fix that.
  • Other goodies have been extended. Some other favorite provisions will be extended through 2012. They include a $1,000 child tax credit, the generous American Opportunity $2,500-a-year tax credit for four years of college and a liberal deduction for interest on student loans. The moral of the story? Send your kids to school with a hug and a kiss. They’re saving you money.



Feb 17, 2011 11:13AM

I know someone who earned 15k last year , paid 1k in federal taxes and is getting a 9k income tax refund. All due to earned income tax credits, and having 3 children that she cant afford. To me its not a refund unless you paid it in the first place or its welfare. So thank all the idiots like me who pay who paid 35k in taxes to subsidize all of the system beaters like her.

Feb 17, 2011 12:23PM
As somewhat upper middle class people, my husband and I pay out over 40% of our income to taxes and insurance required by law. We sit on the high tax end to where we don't get any of the so called deductions and we don't make enough money to be considered for the upper class deductions. The federal and local governments will not be happy until they have more of my paycheck than I do. I work 2 jobs and earn every penny I have, I am tired of supporting those than are lazy and expect the government to foot the bill. I am so mad that people like me are going to have to pay for health care for grown adults and don't tell me it isn't going to cost me money cause we all know it will. I am totally for supporting and buying health care for children, I will do that all day long but adults can get off there lazy !*%#'s and take care of themselves. Give me programs that will take care of children, let the adults buy there own healthcare and get a job or else they can go without, they are adults and can make their own decisions and deal with the consequences.
Feb 17, 2011 10:31AM
Well where are the tax cuts for middle class people with no KIDS................​..........
Feb 17, 2011 10:59AM
In 2009 47% of the "taxpayers" paid no FEDERAL TAXES.  I'm in the 53% of the taxpayers who paid taxes and then some more!  Heck, at this point I would settle for the 47% to pay their fair share and that doesn't mean ZERO!  Wish Uncle Sam would get off my back and get his hand outta my pocket and seek out those 47 percenters......PLEASE!
Feb 17, 2011 12:06PM
I agree with QB4th. My wife and I probably have the definition of middle class income, but we have a lower standard of living than the lower income people around us. Why? Because of all the money people get for breeding, and we don't get any because we don't think it's a good idea to have a child in this economy. I know a couple where the husband makes about nine dollars an hour, have two kids, a third one on the way, and they are getting almost nine grand back on their return this year, as they do every year. Throughout the year, they get free food, free health care, and their utilities are paid for. The wife is going to a university that costs 15000 a year, and it's all paid for by the government. My wife and I pay over a quarter of our income in taxes, and have to pay for our own crappy health insurance in addition to paying for medicaid. People on medicaid have it made as far as health insurance is concerned, you don't have to pay for anything. I've seen this with my own eyes. If the financial incentive for having children was taken away, I would bet my life that people would be more prudent about their breeding habits, and a large amount of gov't money could be saved.

Single parents have it even better. My wife works with ladies that have numerous children from numerous men, and they get the gov't goodies, plus child support from those different men. Why do my wife and I have to support this?

Feb 17, 2011 12:46PM
I agree with all that are the older with no children get no breaks.  My husband and I are in the same boat.  There are really no tax breaks for us as we have been responsible paying down our home mortgage and living well within our means and raising our children.  Let's stop giving more money back to people than they pay in.  I, too, know people who probably pay less than 1,000 in payroll taxes yet they get back thousands and blow it on vacations, big TVs etc.  I have not had a vacation in 12 years and work 2 jobs.  Just boggles my mind that they get back more than they pay in, what is wrong with that picture.  I just cringe when I have to send my tax payment in knowing all well someone is going to have a good time and I will still be plugging away at my full-time and part-time jobs.  Angry 
Feb 17, 2011 12:24PM

ahhhhhhhh...nothing like a country that doesn't have the money to support its own government/people but let something happen somewhere else and POW there it rebuild, help with medical, support the homeless and on and on FREE to them...AND WHAT ABOUT YOUR HOME COUNTRY...uhhh we don't have it right now but we can increase your taxes to pay for it...

And as far as problems in other countries (Iran, etc) and our prison population costs to support them. Let's take all the deah row inmates, drop them off in the foreign countries that have all the little vigilanty/terrorist take it - you got it, it's yours.

The USA needs to do just that...worry about US in America (taxpaying american citizens) and let the other countries deal with their own problems...

My personal purposed solution...

When I can fully retire and cut my ties...move to another country. Have actually done a lot of research on some and there are a lot of nice places - WITH MEDICAL & ALL...

Feb 7, 2011 3:59PM

"The moral of the story? Send your kids to school with a hug and a kiss. They’re saving you money."


Ignorant statement! That makes about as much sense as my wife saying she saved me $5 at the clothing store, because she had a coupon to save $5 when you spend $50. I'm out $45 so saving money certainly didn't happen here.

Feb 17, 2011 8:56AM
Feb 17, 2011 12:02PM
There are taxes that are needed for police protection, fire protection, defense of our country, education, etc. We need to trim the waste. Our country spends over $11 billion a year on welfare for ILLEGALS in our country and over a Trillion with a "T" on incarceration of illegals. The crime rate for illegals in the U.S.  is 3 times that of a U.S. citizen. One million sex crimes have been committed by illegals. They are called illegals for a reason, ITS AGAINST FEDERAL LAW!! Let's help our own first. Then we can help foreign countries when we are able.
Feb 17, 2011 11:28AM

I am "sick and tired" of these so-called tax credits. I am a single female, middle class, mid 40's chose not to have children, and I pay over 33% in taxes with no tax break for being a responsible adult. Nothing good here...

And Fed Waste you summed up the truth.. Oh yeah, raise the retirement age, no problem if I a congress person, retire on full pay and full paid benefits.. try working for a living...

Feb 17, 2011 11:05AM
How about this. All CEO's Bonus money up to $5,000,000.00 is tax free Pr.yr. Any monies or perks over that are taxed at 95%. Everyone knows you can not really buy friends, so cut all foreign aid by 50% this year and the rest next year. Send food instead. A Flat sales tax of 6.5% on all but food and water. 20% import tax on ALL things imported next year and 2% more each year until it hits 40% import tax for the next 5 yrs. All people here without the right paper work, Will be given 60 days to leave. If you are still here after that, They will be made to work for local governments for 1yr. without PAY.. Then sent back to their country..
Feb 17, 2011 12:38PM
Amen, Jenniflower13, my husband is in the 60's, I'm in the 50's, we both still work full-time & are paycheck to paycheck like you said.  Without kids at home, we have no tax breaks.  We don't have lots of money, and our home is modest so even the interest on it isn't adequate enough to give us a tax break.  Every year we pay in, and every year I watch families get 4000 or more back, and blow it.  It really sucks! So yeah, how about something for us back breaking, middle class schmucks who will probably owe even when we are 6 feet under!
Feb 17, 2011 7:44AM
Feb 17, 2011 12:24PM
We need to get rid of the earned income. I know some family's that are getting a check anywhere from 4000 to 9000 in income tax. They just blow every bit of it within a week or two and then they are back out there living without the rest of the year. No cars in a house made for two, but have about 6 people crammed in. It's the most ridicules thing I have every seen. Here I am worried about how much MORE I have to pay at the end of the year. This is stupid and I can't see how the government can justify this in their minds!
Feb 17, 2011 11:22AM

So, Tax Breaks, what a joke!  We currently are paying taxes to prolong the incompetence of the federal government.  The waste, the do nothing except collect a paycheck federal workers, the non representation of the American people, and the representation of big business and lobbyists with their own agenda.  Wake up America, we are talking about being penny wise and pound foolish here.  What difference does a few cents off of a stale and moldy $100.00 loaf of bread make.  We need to make some serious high level changes here.


I don't knowCryingThinkingLight bulbSick

Feb 17, 2011 9:25AM

For a couple in their 60's with a modest income and no college age children, this is worthless.  How about no taxes on social security income or modest pensions.  Most people are struggling to get by so these "breaks" are just smoke and mirrors and insult to the intelligence of the people.  Taxes went up this year on my husband's very modest pension which is less than $12,000/yr after 40 years of employment.


How delightfully, convenient that you can transfer charity deductions directly from your IRA !! How do I qualify as a charity??


Capital gains tax breaks - sure I'll be first in line.   What a lot of worthless "tax deal goodies".  Wake me up when you have something important to say that has a real impact on the majority of the American people, until then, just keep quiet. 

Feb 17, 2011 12:46PM
I can't understand our reasoning.  We have a budget in the red, and still give billions to other countries even if we borrow to do it.  Why can't these countries pay for the help they are asking for?  Or Iraq giving some oil back for the billions we have given in defense to them.  No, our retired military that have given 20-30 years of service now have to give up their cost of living increase to once again help the country get out of the mess Washington has us in.  Once again I say "I don't understand our country" but I still say God Bless America and Thank God for the many Blessings we still do have.  
Feb 7, 2011 4:40PM
Not saving me a dime, they took more out of my check and got less of a refund, and I am dirt poor.......screwed again.
I know the earned income credit is like a bonus for most people but the key word is earned and don't see any earning going on. We earn and all we get is to pay. Where is the mind set of our government? why do we continue to reward those who don't strive to do better and punish those of us who foolishly think we can actually get ahead by hard work.
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