Without a moment to spare, Congress has passed an $858 billion tax bill, setting rates for both 2010 and 2011. The good news is, it’s all good news!
The biggest relief for taxpayers is that the Alternative Minimum Tax patch is in place once again for 2010, sparing over 20 million taxpayers from facing a huge surprise bill. If you’ve paid AMT in the past, you’ll most likely still pay it, but at least millions of new taxpayers won’t be pulled into it. The “Bush Tax Cuts” have also been extended two years, so tax rates will be staying the same through 2012. And, the estate tax is going to remain at 35% for amounts over $5 million through 2012.
Working American’s will see another form of tax relief in lower payroll taxes. Each pay period, workers are forced to pay 6.2% Social Security tax on their first $106,800 of income, which is withheld from their gross pay. For 2011, this rate drops to 4.2%, so it’s the equivalent of a 2% raise for all working American’s. I haven’t been able to determine if this applies to self-employed workers as well, but hopefully the details will be hammered out soon. The last form of benefits applies to the unemployed. These individuals receive another 13-month extension on their benefits.
There is no doubt that this tax bill is highly favored by the Republican’s and goes against the Democrat’s agenda. It will actually cost lower-income earners money because they benefited more from last year’s Making Work Pay Credit than they do from the lower taxes. And, wealthy individuals making $500,000 and up will save almost $4,000 over their last year’s tax bill. Since some of the provisions, such as the AMT patch, expire at the end of 2010, and others such as the tax cuts expire at the end of 2011, we still don’t have a solid picture of what the future holds. But, we can still be thankful that our government was able to come together at the 11th hour and prevent an across the board tax increase!
Just this in…the Democrats are NOT backing Obama’s tax cut plan, so my post on Monday is now incorrect! The assumption was that he could get his Democrats to back him, and while there is still a chance, it is not certain! Another thing to keep in mind (thanks to R.B. for reminding me…i encourage everyone to ask questions and keep me on my toes!)…the AMT has still not been patched for 2010. While about 4 million taxpayers were subject to Alternative Minimum Tax last year, that number could grow to 25 million taxpayers this year if a patch is not set by December 31st! I don’t know about everyone else, but this is keeping me on my toes lately!
This just in…Obama and the GOP finally reached a deal on taxes! I’m not sure why it’s being called a “deal” since the Republicans got just about everything they asked for: The Bush tax cuts are extended for 2 years, the estate tax is set at 35% and only assessed on estates greater than $5 million, and many of the research and development tax credits are still available for businesses. To top it all, there is still a proposal on the table for Social Security taxes drop from 6.2% to 4.2% which would be a huge winner for small business! Let’s keep our fingers crossed! More to come as the details are ironed out, but here is a link to a great WSJ article (http://online.wsj.com/article/SB10001424052748704156304576003441518282986.html?mod=WSJ_hp_LEFTTopStories)