President Obama Signs New Tax Relief Bill

A new tax bill has been signed and the main point is that tax rates and most credits will remain unchanged. But there is a bonus for most taxpayers. A 2% reduction in payroll taxes for 2011. Unemployment benefits have also been extended.

1) Payroll Tax Cut: To replace the expiring Making Work Pay a 2% reduction in payroll taxes has been proposed. This should be much easier to administer and also will many times give a much larger credit. Under the old rule the credit was limited to $800 and subject to a phaseout. Under the new law the credit for two earners would max out $4,272 ($106,800 * 2 for each wage earner) and there is no phase out for higher incomes. This “payroll tax holiday” applies to both wages and self employment income and only lasts 1 year.

2) Tax rates on individuals will remain unchaged for the next 2 years. Rates were schedule to revert to the 2001 rates after December 31,2010. The current rates are 10, 15, 28, 33, and 35%.

3) Higher income individuals were scheduled to have reductions on exemptions and itemized deductions. Under the new law full deductions will be allowed for 2 more years.

4) Capital gains rates will also remain unchanged for two years. People in the 10 and 15% bracket will still have a zero capital gains tax rate.

5) Child tax credit, EIC and dependent care credit were all scheduled to go to lower levels. These also will remain unchanged for the next 2 years.

6) The Alternative Minimum Tax patch has be done for two years. The patching of AMT has become an almost annual ritual. It had been estimated that over 20,000,000 would have been subject to AMT if the patch (raising of exemption amounts) was not enacted. Under the bill at least next year will not need a patch.

7) American Opportunity Tax Credit: This was schedule to revert to the HOPE credit levels under but will also be retained for two years.

8) Expanded bonus depreciation will allow 100% of the cost of qualifying new property to be deducted in the year it is purchased. Bonus depreciation was at 50% and the remaining cost would be depreciated over the useful life of the property. Real estate such as residential and commercial rentals do not qualify. Unlike most items in the bill this is only scheduled to last through 2011.

9) Changes to the federal estate tax: The estate tax expired in 2010 and was scheduled to return in 2011 with a $1,000,000 exemption and a 55% top rate. Under the law the exemption would raise to $5,000,000 and a maximum rate of 35%. This is scheduled to expire after December 31, 2012.

Published on January 25, 2011 at 12:08 am  Leave a Comment  

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