Taxes are Not Increased for Next Year

Congress passed the most far-reaching tax bill in a decade late Thursday, averting across-the-board tax increases, enacting new breaks for individuals and businesses.

 The House of Representatives on Thursday  passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, The bill now goes to President Barack Obama for his signature, which is expected soon.

The bill has provisions covering the estate tax, expiring tax cuts, expired tax provisions and an alternative minimum tax (AMT) patch. 

The bill postpones the scheduled sunset of the lower tax rates introduced in 2001 by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA, PL 107-16); those rates will now continue through 2012. The bill also continues the lower capital gains tax rate introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (PL 108-27) through 2012. 

For 2011 only, the bill reduces the rate for the Social Security portion of payroll taxes to 10.4%, by reducing the employee rate from 6.2% to 4.2% (the employer’s portion remains at 6.2%).

 The bill includes an AMT patch for 2010 and 2011. For 2010, the AMT exemption amounts will be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. For 2011, the amounts will be $48,450 and $74,450, respectively. 

The bill extends the 100% bonus depreciation for business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012. 

The bill temporarily reinstates the estate tax, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011). 

The bill also extends a large number of expired or expiring provisions, including: 

  • The increased standard deduction for married taxpayers filing jointly, scheduled to expire after 2010, would continue for two years;
  • The $1,000 child tax credit amount would continue for two years, instead of reverting to $500;
  • The $3,000 amount for the child and dependent care credit, which is scheduled to revert to $2,400 after 2010, would continue for two years;
  • The American opportunity tax credit would continue for two years;
  • The temporary 100% exclusion of gain from the sale of certain small business stock under IRC § 1202, enacted by the Small Business Jobs Act of 2010, would be extended through 2011.
David Bradsher, CPA