Individual Income Tax Rates
The Act extends the Bush tax cuts for all taxpayers through December
31, 2012. Individual income tax rates were scheduled to rise to
a range of 15 to 39.6 percent in 2011 but the Act continues with the
range of 10 percent to 35 percent for 2011 and 2012. The lower rates
are of course, set to expire again after 2012 but it is possible that
some type of deficit reduction compromise may be reached before then
to lend more permanancy to future tax rates.
Capital Gains and Dividend Rates
Just as income tax rates were scheduled to return to pre-tax cut
levels, tax rates on capital gains and qualified dividends were also
set to expire at the end of 2010 which would have meant a return to a
20 percent rate on capital gains and normal tax rates on qualified
dividends. Through December 31, 2012, the capital gain rate and
qualified dividend rate from domestic corporations will continue at 15
percent (0 percent for taxpayers in the lowest income brackets).
For the past several years, the total amount of itemized deductions
that high income taxpayers could take has been limited by a phaseout
amount at various income levels. That limitation was repealed
for 2010 and the Relief Act extends the repeal through December 31,
Just as with itemed deductions, many taxpayers at higher income levels
experienced a phase-out of their allowable personal exemptions prior
to 2010. That phaseout was scheduled to return, however in 2011 so the
Act extends the repeal of personal exemption phase-outs through
December 31, 2012.
After 2010, married couples filing a joint return would only be
allowed the same basic standard (non-itemized) deductions as single
taxpayers which was the case prior to 2001 when the marriage penalty
was changed so that the standard deduction for couples was raised to
nearly twice the level of singles. The Act extends the 2001 marriage
penalty relief for another two years.
Child Tax Credit
The Act extends the $1,000 child tax credit per qualified child
through December 31, 2012. The child tax credit was originally
scheduled to drop from $1,000 to $500 at the end of 2010. The credit
begins to phase out for single taxpayers with an adjusted gross income
of $75,000 and for married filing joint taxpayers with an adjusted
gross income of $110,000 for couples filing jointly.
Earned Income Credit
In addition to the tax rate extension, the current earned income tax
credit has also been extended for another two years through December
The $3,000 credit for allowable dependent care expenses related to
holding a job or seeking employment has been extended through December
31, 2012. The credit can rise to $6,000 for more than one
qualified individual and it was scheduled to expire at the end of
American Opportunity Tax Credit
The expanded American Opportunity Tax Credit was scheduled to expire
at the end of 2010 and would have returned to much lower pre-2009
levels. The Act has extended the current maximum credit of
$2,500 for qualified higher education expenses for qualified
individuals through December 31, 2012. The credit covers 100
percent of the first $2,000 of expenses and 25 percent of the
Educational Assistance Exclusion
An exclusion of up to $5,250 from income and employment taxes for
employer-provided educational expenses has been extended through 2012.
It was scheduled to expire at the end of 2010.
Alternative Minimum Tax
In an attempt to keep still more middle income taxpayers from falling
under the AMT, higher exemption amounts will be in effect for 2010 and
2011. For 2010, the exemption amount increases to $47,450 for
individuals and $72,450 for married couples filing jointly. The amount
increases in 2011 by $1,000 for singles, and $2,000 for married
couples filing jointly. Without this patch, the minimum AMT exemption
would have fallen to $33,750 for singles and $45,000 for married
couples filing jointly.
A Cut in Payroll Taxes for all Workers
A payroll tax holiday, intended to inject $120 billion into the
economy, is included in the new law. Last year's Making Work Pay
credit will be allowed to expire at the end of 2010. The 2010 Tax
Relief Act provides a temporary reduction in the OASDI (Old Age
Survivors Disability Insurance) portion of social security tax for
wage earners from 6.2 percent to 4.2 percent. In dollars, this means
that an individual earning at or above the cap of $106,800 could
receive a tax benefit of up to $2,136. Self-employed individuals would
pay 10.4 percent on self-employed income.
Since Jan. 1, 2010 there has been no estate tax (thanks to the gradual
phase-out outlined in EGTRRA). Had a new tax law not passed by the end
of this year, a rate of 55 percent and exclusion level of just $1
million would have taken effect. Under the new law, the maximum estate
tax rate will be 35 percent, with a $5 million exclusion ($10 million
for married couples) amount through Dec. 31, 2012.
Fifty-percent bonus depreciation that was already in place is boosted
to 100 percent for qualified investments made after Sept. 8, 2010
through Dec. 31, 2011. For qualified property placed in service in
2012, the 50 percent bonus depreciation will return. Unlike Section
179 expensing, bonus depreciation is not limited to use by smaller
businesses and is not capped at a certain dollar level.
Section 179 expensing limits were already set at $500,000 and
investment limits at $2 million for 2010 and 2011 by the Small
Business Jobs Act of 2010. The new law prevents those levels from
falling to $25,000 and $200,000 respectively beginning in 2012.
Instead, the expense limit will be $125,000 with a $500,000 investment
limit in 2012.
R & D Tax Credit
Not for the first time, the research and development tax credit was
allowed to expire at the end of 2009. While the president and others
have urged Congress to make the credit permanent, a two-year extension
was all lawmakers were willing to give. The credit is retroactive for
amounts paid or incurred after Dec. 31, 2009 through 2011.
Employer-Provided Child Care Credit
Employers can receive credit for up to $150,000 of the qualified cost
of making child care available for employees. Set to expire after
2011, the credit is now extended through 2012