It’s Official; the Tax Breaks Have Been Extended

24 12 2010

Last week the Tax Hike Prevention Act was signed into law. The Bush Administration Tax Cuts have been extended for another 24 months. What does this mean to you?

The highlights of what the bill contains are:

  • Income tax rates remain the same: Federal income tax rates will remain at: 10%, 15%, 25%, 28%, 33% and 35%.
  • “Wealth Tax” Tax Break: Many tax filers will be protected from having to pay the Alternative Minimum Tax, affectionately known as the “Wealth Tax”. Individuals who make up to $47,450, and couples filing jointly who make up to $72,450 will be exempt from paying the AMT.

  • Social Security tax break: Workers will get a 2 percentage-point break on their payroll tax for 2011. Currently the tax is 6.2% on wages up to $106,800, so in 2011, the rate will be 4.2%.
  • Increase in Child Tax Credit: $1,000 child tax credit, increased from $500.
  • Refundable Tax Credit: If a tax filer does not own any federal income and qualifies for a credit, it will be paid in the form of a refund.

  • Smaller estate tax: The exemption level will be raised from $1million to $5 million and the top rate lowered from 55% to 35%. There will also be a reinstatement of a tax for beneficiaries referred to as a “Stepped-up Basis”. This means that when someone sells an inherited asset of someone who died in 2010, 2011, 2012, the capital gains tax will be based on the asset’s price the day he inherited it, rather than when the decedent originally bought it.

  • Help for the jobless: There will be a 13-month extension of the deadline to file for additional unemployment benefits
  • Extended investment tax rates: Qualified capital gains and dividends will continue to be taxed at 15% for most investors. Low-income tax filers (those in the 10% and 15% brackets), will continue to have a 0% tax rate on their capital gains or dividends.

  • Expanded college credit: Filers will receive a credit worth up to $2,500 that may be claimed for four years’ worth of college. This credit is available for single filers with a gross income below $90,000 and for couples filing jointly with a gross income below $180,000.

There will also be extensions for several individual tax breaks such as a break for teachers who had to by classroom supplies. Hopefully this has helped clarify how these extensions will impact you.

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