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We’ve talked quite a bit about the Bush tax cuts and how they are expiring at the end of 2010. If something wasn’t done about the expiring rates ALL taxpayers would have been seeing an increase in their taxes in 2011. An average family would have ended up paying thousands more in taxes.

Tax Cut Bill Passed In The House

Congress and the President realized that something needed to be done, and as such they came together to pass a compromise tax cut package that would allow the current rates to continue for 2 years, cut social security taxes for one year, as well as extending benefits for the long term unemployed. The bill should be signed by the President later today.

President Obama gets to play Santa Claus on Friday when he signs into law a massive bipartisan tax package preventing a big New Year’s Day tax hike for millions of Americans. Obama is scheduled to sign the bill at 3:50 p.m. from the White House, sealing a deal with congressional Republicans that was nearly derailed by liberal Democrats who risked being seen as the Grinch. The measure would extend existing tax cuts for families at every income level, renew jobless benefits for the long-term unemployed and enact a new one-year cut in Social Security taxes that would benefit nearly every worker who earns a wage. The bill was passed just before midnight Thursday in a remarkable show of bipartisanship in the House, despite objections from some Democrats, who wanted to impose a higher estate tax than the one Obama agreed to. The vote was 277-148, with each party contributing an almost identical number of votes in favor — the Democrats 139 and the Republicans 138.

So in the end after an entire year of political wrangling on the extension of the Bush era tax cuts, the President and Congressional Republicans were able to come up with a compromise that had both sides getting some of what they wanted, but not everything. While Congressional Democrats weren’t happy with the extension of the Bush tax cuts for high income earners, they begrudgingly went along after threatening to make changes to the bill earlier this week.

What Is In The Tax Cut Bill?

There are several components to this tax cut bill.

Bush Era Tax Cuts

The 2001 and 2003 Bush tax cuts meant a reduction marginal tax rates for all taxpayers. Those rate reductions will be extended for two years. That means the tax rates will remain essentially unchanged for everyone, including the high income earners. The tax rates should look similar to those for 2010, shown below. When the 2011 marginal income tax rates become available, we’ll include them here.

Tax Bracket Single Married Filing Jointly 10% Bracket $0 – $8,375 $0 – $16,750 15% Bracket $8,375 – $34,000 $16,750 – $68,000 25% Bracket $34,000 – $82,400 $68,000 – $137,300 28% Bracket $82,400 – $171,850 $137,300 – $209,250 33% Bracket $171,850 – $373,650 $209,250 – $373,650 35% Bracket $373,650+ $373,650+

In addition to extending the rates for two years, Obama wanted to institute a 1 year payroll tax holiday. Basically you’ll be paying 4.2% in payroll taxes for social security and medicare in 2011, versus the normal 6.2% on the first $106,800 in income.

The Estate Tax Returns, But Lower

The estate tax lapsed in 2010, but would have been returning next year at a rate of 55% with an exemption of $1 million this package hadn’t happened. The tax cut bill changed that to have it be a top rate of 35% and a $5 million exemption.

Unemployment Benefits Extension

The original date to apply for up to 99 weeks of unemployment for the long term unemployed expired on 11/30. This will extend that date for another 13 months. Note that the 99 weeks of unemployment benefits aren’t available to everyone, but only in some high unemployment states.

Child Tax Credit Extended

The $1000 child tax credit will remain instead of dropping to $500.

Maintains Standard Deduction For Married Filers

The package will maintain the standard deduction for married filers so that it will be twice that of a single filer – negating the so called “marriage penalty”.

Patch for Alternative Minimum Tax (AMT)

The amount of income exempt from AMT will rise for 2010 and 2011. In 2010, the amount exempt from AMT will be $47,450 for single filers, $72,450 for married filing jointly. In 2011, it would be $48,450 and $74,450 respectively.

Tax Cuts Should Be Signed Today

So that’s the tax cut package in a nutshell, and President Obama should be signing them into law sometime this afternoon.

So what do you think of the tax cut package? Is it a good thing, bad thing 0r a little of both? If you don’t like it, what would you have rather seen?

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