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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.