Individual Income Tax
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That limitation was repealed for 2010 and the Relief Act extends the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, 2012.
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 31, 2012.
Dependent Care Expenses
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 2010.
American Opportunity Tax
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 next $2,000.
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
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
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.
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