The following summaries of the income tax provisions contained in the proposal announced by President Obama on Dec. 6, 2010 are based on information provided in the White House fact sheet.

Extension of Bush Tax Cuts

An extension of the Bush-era tax cuts means that for the next two years the long-term capital gains and qualified dividend tax rate will remain at 15% and the income tax rates applicable to individuals (depending on level of taxable income) will remain at 10%, 15%, 25%, 28%, 33%, and 35%.

Payroll Tax Cut for Employees

The deal, as currently contemplated, will cut the employee-portion of payroll taxes by two percentage points for 2011. It is expected that this cut will drop the social security tax rate applicable to an employee in 2011 from 6.2% to 4.2%, resulting in an annual savings of $2,136 for someone earning enough to hit the $106,800 contribution cap. The employer-portion of payroll taxes is not affected by the compromise proposal.

AMT Patch

Although the White House fact sheet does not provide details, the agreement will include an alternative minimum tax (AMT) patch for 2010 and 2011 to prevent an additional 21 million households from becoming subject to the AMT.

Extension of Unemployment Benefits

Under the terms of the proposed agreement, unemployment benefits will be extended for 13 months, through the end of 2011, and will remain at their current level.

Tax Credits Extended

The Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit are all expected to be extended for two years under the terms of the deal.

Business Tax Incentives

It is anticipated the agreement will permit businesses to deduct 100% of their capital expenditures in 2011 with respect to certain qualified property acquired after Sept. 8, 2010 and before Jan. 1, 2012, and which is placed in service before Jan. 1, 2012. The Research & Development Tax Credit and New Markets Tax Credit and certain other tax incentives to support business expansion are expected to be extended for two years retroactively to 2010 and through the end of 2011. In addition, the agreement is expected to extend the 100% exclusion of the gain from the sale of qualifying small business stock to include qualifying small business stock acquired at original issue before Jan. 1, 2012. A repeal of the recently enacted expansion of the form 1099 reporting requirements, however, is not included in the deal.

Individual Tax Incentives

Although not specifically mentioned in the White House fact sheet, the proposed deal also may extend certain expired tax provisions applicable to individuals through 2011. These are individual income tax deductions that expired after 2009, but have been extended before, such as the deduction for educators' expenses, the additional deduction for real property taxes for individuals who claim the standard deduction, deductions for tuition fees and expenses, and deductions for state and local sales taxes.

Energy Tax Provisions

The agreement is expected to extend several expiring energy tax provisions for one year.

A summary of the estate and gift tax provisions based on the White House fact sheet are available at this link.

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