A number of important changes to the tax laws are expected to take place in 2011, as the tax cuts made in 2001 and 2003 expire. It is important to know these changes when encountering a tax lawsuit settlement. It is expected that higher earners will begin to see their taxes rising, but any individual who earns under 200,000 dollars, or any married couple whose joint earnings are below 250,000 dollars, is unlikely to be affected by the changes.

One of the main changes will be a reinstatement of the higher rates of income tax for high earners. This is one of the changes that is most likely to take place in 2011, with the top income tax rates returning to their previous levels. The 33 percent income tax rate will return to 36 percent, while the 35 percent rate will rise back up to 39.6 percent. The cuts that have been made to income tax for middle and low earners are expected to remain in place, permanently.

Taxpayers who are in the top two brackets for income tax are also likely to be affected by changes to the limits on itemized deductions and personal exemptions, although it is unclear as yet exactly how the tax laws will change in 2011. One proposal is that these exemptions and deductions for high earners will be phased out, but it is also possible that the deduction rates will be capped at 28 percent.

Another change that is likely to take place in 2011 is the rise in the tax rate for qualified dividends and capital gains. The capital gains tax rate has been set at 15 percent for some time, but it is expected to rise to 20 percent next year. Dividends may be treated in the same way, but it is also possible that they will begin to be taxed at the same rate as income tax. This change will affect investors with high incomes.

The federal estate tax is set to be reinstated in 2011. Currently, there is no such tax, but next year it is likely to return. The top rates will be 55 percent for estates of between 1 and 10 million dollars, and 60 percent for estates worth more than 10 million dollars. However, congress may limit the tax to estates that are worth over 3.5 million dollars for individuals and 7 million dollars for married couples. The rate on estates that exceed these amounts may also be reduced, to 45 percent. However, it is certain that changes will be made to estate taxes in 2011.

Although most of the major changes to the tax laws are only going to affect those with the highest incomes, there is one change that is expected to affect a large number of taxpayers, particularly middle class taxpayers. This will be another Alternative Minimum Tax or AMT one year patch. However, it seems that Congress may decide to make a permanent change in 2011, rather than simply passing another one year patch. This could lead to an exemption that is automatically adjusted in the future to keep it in line with inflation.

Some other changes that are likely to have far-reaching consequences in 2011 include changes to the income tax credits that are available. Many taxpayers are likely to see a reduction in their tax credits, with the child tax credit expected to be cut to half its current size, and the Making Work Pay credit disappearing completely from 2011. Tax deductions are also likely to be changed in 2011, with a time limit being set for the student loan interest deduction, and the mortgage insurance premium deduction vanishing. More information about taxes can be found on Net4Tax.com.