TAX RELIEF ACT OF 2010 – CRITICAL ITEMS YOU SHOULD KNOW
The 2010 Tax Relief Act keeps intact for two more years America’s existing tax rate structure, temporarily fixes the AMT, and extends a number of deductions and tax credits, provides a temporary one-year reduction in Social Security taxes, temporarily reforms estate and gift taxes, and provides a number of incentives for businesses to invest in equipment.
SOCIAL SECURITY TAX RATE
Starting from Jan 1 2011, Social Security taxes will be reduced from the current 6.2% to a temporary rate of 4.2% for employee only. The employer-portion remains the same at 6.2%; and the Social Security wage base remains the same at $106,800 for 2011. Medicare tax rates are not changed. You will need to change your payroll deductions for 2011 to take less from employee paychecks. The self-employment tax rate will also be reduced for self-employed individuals, by 2%. If you pay self-employment (Social Security and Medicare) taxes, your rate will be reduced from 12.4% to 10.4% of your net business income.
CAPITAL GAIN TAX RATE
Capital gain tax rate will remain the same, with a zero percent and a 15% rate applied to longterm gains and a 15% rate applied to qualifying dividends. If the Tax Relief Act had not passed, the 0% rate would have risen to 10%; the 15% rate
would have risen to 20%; and dividends would have been taxed at ordinary rates instead of the preferred 15% rate.
ALTERNATIVE MINIMUM TAX (AMT)
Alternative minimum tax exemptions have been temporarily increased for the years 2010 and 2011 (but not for 2012) to $47,450 for individual taxpayers, $72,450 for married taxpayers filing jointly and surviving spouses, and $36,225 for married couples filing separately. Exemption amounts help prevent some middle income earners from being subject to the AMT, and help keep any AMT adjustments less than they otherwise might have been. Without this patch, which had expired at the end of 2009, an estimated 21 million additional households would be subject to the AMT.
PERSONAL TAX RATE
For the years 2011 and 2012 will keep our existing six-rate structure ranging from 10% to 35%. If the Tax Relief Act had not passed, the tax rates would have reverted to their pre-2001 levels ranging from 15% to 39.6%.