On December 16, 2010, the US House of Representatives approved the US Senate's version of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The President is expected to sign the bill next week. The bill's total cost to the US Treasury is $858 billion. Individual taxpayers will receive the bulk of the benefit as the bill targets some $700 billion in tax breaks toward them. The following is a summary of certain provisions in this bill:
Extension of Rates - Individual tax rates had been scheduled to increase from their current rates of 10, 15, 25, 28, 33 and 35% to 15, 28, 31, 36 and 39.6% in 2011. The current rates have been extended for 2011 and 2012.
Alternative Minimum Tax - The bill contains a two year patch for the AMT. This is retroactive to January 1, 2010, thus reducing the AMT burden for tax years 2010 and 2011.
Payroll Tax Credit - For 2011 only, the bill reduces the employee's portion of Social Security (FICA) taxes from 6.2% to 4.2%. Someone earning the maximum amount subject to Social Security tax ($106,800) will see their FICA tax reduced by $2,136. Married couples with both husband and wife working and earning the maximum can see double the benefit. Self-employed persons currently pay 12.4% in FICA taxes; this will be reduced to 10.4%.
Investment Income - Long term capital gains and dividends are currently taxed at a maximum rate of 15%. This act extends these rates for 2011 and 2012 as they had been set to expire.
Itemized Deduction and Personal Exemption Limitation - Both itemized deductions and personal exemptions will not be subject to phase out in 2010, 2011 and 2012.
Bonus Depreciation - Bonus depreciation for qualifying investments made after September 8, 2010 through December 31, 2011 will be eligible for 100% bonus depreciation. Property placed in service in 2012 will be eligible for 50% bonus depreciation. Bonus depreciation is generally not limited to use by smaller businesses or capped at dollar levels.
Research Tax Credit - The research tax credit had expired as of December 31, 2009. This has been extended for 2010 and 2011.
Estate Tax - For 2011 and 2012, the maximum estate tax rate is 35% with an exemption amount of $5 million.
Marriage Penalty - The so called "marriage penalty" was scheduled to return in 2011. This bill extends relief from the marriage penalty by increasing the standard deduction for married couples and increasing the size of rate brackets. This extension is for 2011 and 2012.
For more information on this topic, please contact Jamie Downey at jmdowney@downeycocpa.com or 800-849-6022.
