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2010 Tax Relief Act – Personal Income Tax

On December 17, 2010, The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law by the President. The personal income tax provisions in this law provide for an extension of the Bush-era tax cuts which were scheduled to expire at the end of 2010. The 2010 Tax Relief Act temporarily extends most of the tax cuts for 2011 and 2012 only.

Income Tax Rates

Individual income tax brackets will remain unchanged for 2011 and 2012, keeping the current structure ranging from 10-35%. The capital gains tax rates will also remain as is for the next two years.

Payroll taxes are reduced by 2 percentage points. Social Security tax rate for the employee-portion will be reduced temporarily to 4.2% for 2011 only. The employer-portion will remain at 6.2%. The Social Security wage base remains at $106,800 for 2011. Medicare tax rates remain unchanged. The self-employment tax rate is temporarily reduced 2 percentage points to 13.3% for 2011 only.

Extension of Tax Credits

The Act extended many personal tax credits through 2012. These credits were either scheduled to expire or reverted back to previous levels in 2011.

  • Child Tax Credit
  • Earned Income Credit
  • Dependent and Child Care Credit
  • Adoption Tax Credit
  • American Opportunities Credit

Estate Tax

The Estate Tax Credit was enhanced under the Act. The 2011 Estate Tax exempts the first $5.0 million of the estate and then imposes a 35% tax rate on the remainder. This is a significant change from the 2009 level of $3.5 million exemption and 45% tax rate. Further, without this provision, the estate exemption level would have reverted back to $1.0 million.

Other Deductions

  • For higher-end taxpayers, there is a two year extension to the elimination of the itemized deduction limitation and the personal exemption phaseout. Both of the temporary repeals have been extended until the end of 2012.
  • Retention of marriage relief penalty for certain tax brackets.
  • Deductions for educator expenses, student loan interest, qualified tuition and state sales tax have all been extended for one or two years.

As can be seen, the 2010 Tax Relief Act provides many tax saving opportunities for individuals. Please contact us for further information regarding your personal tax situation.

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