Important Changes for 2001

Standard deduction. For most people, the standard deduction has increased. See Standard Deduction, later.

Earned income credit. You may be eligible for the credit if you earn less than:

1. $28,281 and have one qualifying child living with you,
2. $32,121 and have more than one qualifying child living with you, or
3. $10,710, do not have a qualifying child, and are at least 25 years old and under 65.

For more information, see Earned Income Credit, later.

Reduced tax rates. For tax years beginning in 2001, the income tax rates have been reduced. The following items highlight these changes.

10% tax rate. A portion of your income that would be subject to the 15% tax rate is subject to a reduced rate of 10%. For 2001, most individuals receive the benefits of the 10% rate through the rate reduction credit. A person who can be claimed as a dependent on someone else's return is not eligible for the credit and will receive the benefits of the 10% rate by completing a worksheet in the form instructions.

Other tax rates. The other tax rates, 28%, 31%, 36%, and 39.6% are reduced to 27.5%, 30.5%, 35.5%, and 39.1%, respectively. These reduced rates should have been reflected in amounts withheld (such as backup withholding) on certain payments made after August 6, 2001.

Advance payment of income tax. If you received an advance payment of income tax in 2001, you do not have to report this payment as income on your federal income tax return. This payment reduces your rate reduction credit, discussed next.

Rate reduction credit. If you did not receive the maximum advance payment in 2001, you may qualify for the rate reduction credit. You can use the worksheet in your form instructions to determine whether you can claim that credit.

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