The following information is a brief overview of some of the tax law changes that came into effect in 2001.

• Standard Business Mileage Rate –The optional standard mileage rate for operating your car for business is 36 ½ cents per mile for all business miles driven in 2002. For more detailed information refer to Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expense, and Publication 535 (PDF), Business Expenses.
• For 2002 tax returns, most taxpayers will no longer have to file a separate schedule if they have interest or dividend income of $1500.00 or less. Form 1040 filers use Schedule B, Interest and Ordinary Dividends, to list the names of those who paid them along with the amount; Form 1040A filers use Schedule 1. The new IRS standard replaces the existing reporting threshold of $400.00.
• Adoption Tax Benefits – The exclusion and the credit for non-special needs adoptions are made permanent (the credit for special needs adoptions is already permanent).
• The maximum credit or exclusion per eligible child (currently $5,000 for a regular adoption and $6,000 for a special needs adoption) is increased to $10,000.
• In the year a special needs adoption is finalized, the credit or exclusion is allowed up to the amount of the taxpayer's qualified adoption expenses.
• The income phaseout range for both the credit and the exclusion (currently $75,000-$115,000) is increased to $150,000-$190,000.
• The current provision allowing the credit against the AMT (which otherwise would expire after 2001) is made permanent.
• Dependent Care Tax Credit –The maximum amount of eligible employment-related expenses for 2002 is increased from $2,400 to $3,000 if there is one qualifying child or dependent, and from $4,800 to $6,000 if there are two or more qualifying children or dependents. The maximum percentage of eligible expenses that can be claimed also was increased, from 30 to 35 percent. Thus, the maximum credit is $1,050 (3,000x.35) if there is one qualifying child or dependent, and $2,100 (6,000x.35) if there are two or more qualifying children or dependents.
• Earned Income Credit –The following changes came into effect after December 31, 2001:
  • The definition of earned income is revised to exclude nontaxable employee compensation, and Modified adjusted gross income is replaced with adjusted gross income,
  • The present-law provision that reduces the credit by the amount of an individual’s alternative minimum tax is repealed,
  • The above requirement for a qualifying child is changed to "more than half of the tax year," for all children, and
  • The present-law tie-breaker rules are used.
• Above-the-Line Deduction for Qualified Higher Education Expenses –The above the line deduction will be available to taxpayers whether they itemize their deductions or not. Qualified expenses are the same as for the Hope Credit. In 2002 and 2003, taxpayers with adjusted gross income (AGI) not exceeding $65,000 ($130,000 for married couples filing jointly) are entitled to a maximum deduction of $3,000 per year. In 2004 and 2005, taxpayers with AGI not exceeding $65,000 ($130,000 for married taxpayers filing jointly) are entitled to a maximum deduction of $4,000, and taxpayers with AGI not exceeding $80,000 ($160,000 for married taxpayers filing jointly) are entitled to maximum deductions of $2,000. Taxpayers with AGI above these thresholds will not be entitled to any deduction. Also, married individuals filing separately and nonresident aliens are not allowed to take the deduction. This provision is effective for taxable years beginning after December 31, 2001, and before January 1, 2006. For more detailed information refer to Publication 970 (PDF), Tax Benefits for Higher Education.

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