Tax Law Changes: The 2010 Tax Relief and Job Creation Act

The news has recently been abuzz with the new tax legislation passed by Congress and approved by the President. This newsletter will explain in more detail a substantial portion of the content of the recently passed tax legislation and how the new relief provisions may affect you.

On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Act). The Act extends the Bush era tax cuts, temporarily extends unemployment insurance benefits, and includes other temporary business and individual tax incentives. However, the Act does not include any revenue offsets.

The Joint Committee on Taxation staff estimates that the Act will deliver $801 billion of tax and $56 billion of direct spending benefits over 10 years.

Summary of the Act’s Provisions

•Extension of the current individual income tax rates for two years through 2012.

•Extension of a higher alternate minimum tax (AMT) exemption and allowance of nonrefundable personal credits against the AMT for 2010 and 2011

•Temporary estate tax relief with an exemption of $5 million per person and rates up to 35 percent with an election out for 2010.

•Extension of 50 percent bonus depreciation through 2012 and a 100 percent expensing allowance for property placed in service after September 8, 2010, through 2011.

•A one-year reduction in the employee’s share of the social security tax from 6.2 percent to 4.2 percent.

•Extension through 2011 of provisions that expired at the end of 2010 including the research and experimentation credit and the section 1603 credit providing grants for energy property in lieu of production or investment tax credits.


Individual Tax Rates

The Act extends all individual rates at 10, 15, 28, 33, and 35 percent for two years, through December 31, 2012. After the sunset of these tax rate extensions, the top individual tax rate will rise to 39.6 percent.

The top individual tax rate in 2013 does not include the rate increases enacted by the Patient Protection and Affordable Care Act of 2010. This increase irs relief includes an additional 0.9 percent Medicare Hospital insurance tax on self-employed individuals and employees and an unearned income Medicare contribution of 3.8 percent on certain investment income.

Capital Gains / Dividends

During 2010, qualified capital gains and dividends were taxed at a maximum rate of 15 percent (zero percent for taxpayers in the 10 and 15 percent income tax brackets). The Act continues this treatment for two years, through December 31, 2012. Additionally, the rates on qualified dividends will remain at 15 percent over the next two years. Qualified dividends are dividends received from a domestic corporation or a qualified foreign corporation.

Itemized Deduction Limitation

The Act extends full repeal of the Pease limitation, through December 31, 2012. The Pease limitation reduces the total amount of a higher-income individual’s otherwise allowable deductions.



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