Individual Tax Rates Individual income tax rates had been scheduled to revert from their current levels of 10, 15, 25, 28, 33, and 35 percent to 15, 28, 31, 36, and 39.6 percent after December 31, 2010. The 2010 Tax Relief Act extends all individual rates at 10, 15, 25, 28, 33 and 35 percent for two years, through December 31, 2012.
Capital Gains/Dividends Qualified capital gains and dividends currently are taxed at a maximum rate of 15 percent (zero percent for taxpayers in the 10 and 15 percent income tax brackets) for 2010. The 2010 Tax Relief Act continues this treatment for two years, through December 31, 2012.
Itemized Deduction Limitation Prior to 2010, a limitation reduced the total allowable itemized deductions for higher-income individuals. The limitation was repealed for 2010. The Act extends the repeal through December 31, 2012 allowing all taxpayers to use all their itemized deductions.
Personal Exemption Phaseout Before 2010, taxpayers with income over certain thresholds were subject to a personal exemption phase out (known as PEP.) This phase out was repealed for 2010. The Act extends the repeal of PEP through December 31, 2012.
Marriage Penalty Relief Marriage penalty relief has been extended through December 31, 2012 by increasing the standard deduction and the size of the 15 percent income tax rate bracket for married couples filing jointly to twice the amount for a single individual.
Child Tax Credit The 2010 Tax Relief Act extends the $1,000 child tax credit for two years, through December 31, 2012. Also extended for two years are enhancements to the credit made by prior tax acts. The child credit continues to be phased out for taxpayers with adjusted gross income starting at $110,000 for joint filers ($75,000 for others).
Adoption Credit Taxpayers who incur qualified adoption expenses may be eligible for the adoption credit or, in the case of employer-provided assistance, an exclusion from income. The 2010 Tax Relief Act extends the enhancements from prior legislation to the credit and exclusion amount through December 31, 2012.
Dependent Care Credit A taxpayer who incurs expenses to care for a child under age 13 or for an incapacitated dependent or spouse to enable him or her to work or look for work can claim a dependent care credit. The 2010 Tax Relief Act extends the enhanced dependent care credit as established with prior legislation for two years, through December 31, 2012.
Mortgage Insurance Premiums Under current law, taxpayers may deduct certain premiums paid for qualified mortgage insurance during the tax year in connection with acquisition indebtedness on a qualified residence. The deduction is subject to phaseout based on a taxpayer's income. The 2010 Tax Relief Act extends the deduction for one year subject to some limitations.
American Opportunity Tax Credit The 2009 Recovery Act enhanced and renamed the Hope education credit as the American Opportunity Tax Credit (AOTC) for 2009 and 2010. The 2010 Tax Relief Act extends the AOTC for two years, through
December 31, 2012. Also extended are income limitations (the AOTC begins to phase out for single individuals with modified AGI of $80,000 ($160,000 for married couples filing jointly) and completely phases out for single individuals with modified AGI of $90,000 ($180,000 for married couples filing jointly).
Educational Assistance Exclusion Current law allows employees to exclude up to $5,250 in employer-provided education assistance annually from income and employment taxes. Employers may deduct up to $5,250 annually for qualified education expenses paid on behalf of an employee. This treatment was scheduled to expire after 2010. The 2010 Tax Relief Act extends these provisions for two years, through December 31, 2012.
Student Loan Interest Deduction Prior legislation eliminated a 60-month rule for the $2,500 above-the-line student loan interest deduction and expanded the modified AGI range for phase-out. This treatment was scheduled to expire after December 31, 2010. The 2010 Tax Relief Act extends the enhancements for two years, through December 31, 2012.
Coverdell Education Savings Accounts The increased maximum contribution amount of $2,000 to a Coverdell Education Savings Account (ESA), and the allowing of elementary and secondary school expenses as qualified expenses have been extended for two years, through December 31, 2012.
Individual Tax Extenders The Act includes certain individual tax incentive extenders that had expired at the end of 2009. These extenders will be available to individuals through December 31, 2010 and include:
- State and local sales tax deduction
- Higher education tuition deduction
- Teacher classroom expense deduction
- Charity contribution of IRA proceeds
- Charity contribution of appreciated property for conservation purposes
- Deduction for mortgage insurance premiums
The Act does not extend the additional standard deduction for real property taxes which expired in 2009.
Alternative Minimum Tax The 2010 Tax Relief Act provides an AMT "patch" intended to prevent the AMT from affecting middle income taxpayers by providing higher exemption amounts and other targeted relief for 2010 and 2011.
Payroll Tax Cut The 2010 Tax Relief Act reduces the employee-share of the OASDI portion of Social Security taxes from 6.2% to 4.2% for wages earned in calendar year 2011, up to the taxable wage base of 106,800. This is an employee side cut only, as the employer's share of OASDI will remain at 6.2%.
Self-employed individuals would pay 10.4% on self-employment income up to the threshold (plus the 2.9% for Medicare).
Energy Credit The credit for individuals who make energy efficient improvements to principal residences such as furnaces, windows, insulation, water heaters, etc., was set to expire at the end of 2010. This provision has been extended to 2011, but provides a 10% credit rather than the more generous 30% credit and will also impose lower credit maximum limits. |