The new tax bill, otherwise known as the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, was signed into law by President Obama on December 17th 2010. What does the new tax bill mean for you?
The bill has been heralded as the most significant piece of tax legislature in the past decade. On average this bill is set to save the average taxpayer $2,800 next year. For millions of taxpayers there will be a lot of tax savings to be gained. People who have young children or are attending college will save more money, and there will also be more savings for the wealthy.
The new tax bill features both old and new tax cuts. The old tax cuts have been present for much of the decade and the new legislation ensures they are still in place as from 1st January 2011. The new tax breaks will benefit those who are married, have children, childcare payments, attend college, invest in securities and use mass transit. Additional Social Security tax cuts are for every worker earning a wage. The following are the tax benefits featured in the new bill:1Marginal Tax Rates
The federal income tax rates which were lowered under the 2001 and 2003 Bush administration tax plans, were supposed to be terminated on 31st December 2010. However, they will be retained until the end of 2012. Had this not been extended, each person’s taxes would have been much higher as of 1st January 2011.
2Unemployment Extension
This is another of the topics in the new tax law that caused much discussion. Unemployment benefits had previously been extended, but these benefits had to be extended even further due to the sustained high levels of unemployment. However, the benefits are not available for everyone – the stipulation is that the beneficiaries must not have surpassed 99 weeks. However, the new tax bill renews the federal programs that expired in November 2010. This extends the benefits to more than the 26 weeks ordinarily provided at state level. Federal funding will be sustained until 7th January 2012.
3Estate Tax
One of the compromises that the President made to the Republicans is a tax levy of 35% on an inheritance tax in excess of $5 million. If this had not been passed, affluent families would have been required to pay a 55% tax on an inheritance worth $1 million or more as from 1st January 2011. The Democrats had initially shown dissatisfaction with the provision, with the belief that the wealthiest estates should be taxed at a higher rate.
4Payroll Tax Holiday For Social Security
This is one of the old tax cuts that stays in effect with the new bill. Sometimes known as the payroll tax holiday, this provision states that employees whose Social Security payments comprise 6.2% of each pay-check will only be required to pay 4.2% on wages under $106,800 in 2011.
5Making Work Pay
One of the provisions that was not included in the new tax bill is the so called “Making Work Pay” provision. This stipulation was featured in the 2009 Recovery Act and was set to expire on 31st December 2010 and not be renewed. During its use, taxpayers earning $75,000 or less got a credit worth $400, while couples making below $150,000 received a credit worth $800.
6Alternative Minimum Tax
This tax provision has been retained for 2011 and the exemptions have been slightly increased. The 2011 threshold for married joint filers has been set at $74,450. For single or taxpayers who are designated as head of household the threshold is $48,450. For taxpayers who are married but who file separate returns this figure has been set at $37,225.
7Tax Breaks For Families
In the new tax legislation, the per child tax credit is retained at $1,000, instead of being returned to $500 for each child. This rate is set to be maintained through 2012. The phasing out of credits will begin for singles and married couples with adjusted gross incomes of $75,000 and $110,000 respectively.
The tax credit maximum of $3,000 for dependent children under 13 years of age has been retained. For eligible kids who are now attending college, the “American Opportunity Credit” worth $2,500 for the first four years is given to anyone earning a salary of $90,000 or below.
