President Obama signed HR 4853, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Act), into law on December 17, 2010. Some key income tax provisions of the Act are summarized below.
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 Act cuts the employee-portion of payroll taxes by two percentage points for 2011. 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 this provision.
The Act includes 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
The Act extends unemployment benefits at their current level for 13 months, through the end of 2011.
Tax Credits Extended
The Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit are all extended for two years under the Act.
Business Tax Incentives
The Act contains a provision permitting 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 extended for two years retroactively to 2010 and through the end of 2011. In addition, the 100% exclusion of the gain from the sale of qualifying small business stock is extended 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 Act.
Individual Tax Incentives
The Act extends 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 Act extends several expiring energy tax provisions for one year.
A summary of the estate and gift tax provisions of the Act are available at this link.
Waller will continue to monitor developments related to the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. For additional information, please contact Jon Gaston, Leigh Griffith, Shane Morris, Don Stuart, Mike Yopp, or any other member of the Waller Lansden Tax practice at 800-487-6380.
WE ARE REQUIRED BY IRS CIRCULAR 230 TO INFORM YOU THAT THE FOREGOING DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, NOR RELIED UPON, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW. THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THE DISCUSSION. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.