How the Tax Bill Affects You
Have you heard?

On Wednesday, the Senate passed a sweeping tax package called the Tax Hike Prevention Act of 2010 that will save millions of Americans thousands of dollars in higher taxes while also reducing their Social Security taxes and extending jobless benefits. On Thursday at midnight, the bill passed in the House and today, President Obama officially signed the bill into law. Its cost over 10 years is estimated at $858 billion, which will be added to the nation's deficit.

What are the specifics?

We know this list might look overwhelming, but there are a lot of provisions that benefit you, our client. Have a look and let us know if you have questions about anything on this list.Tax cuts
  • Extension of Bush-era tax cuts: The Bush tax cuts have been extended for every level, even for individuals making more than $200,000 and couples making more than $250,000. Come January 1st, your taxes won't go up. The six federal income tax rates will remain at the same levels they are today: 10%, 15%, 25%, 28%, 33% and 35%. In addition, itemized deductions will continue to be allowed in full for high-income taxpayers.
     
  • AMT fix: More than 20 million tax filers will be protected from having to pay the so-called "wealth tax," otherwise known as the Alternative Minimum Tax. For tax year 2010, the bill raises the amount of income that is exempt from the reach of the AMT to $47,450 for individuals and to $72,450 for couples filing jointly. In 2011, those exemption amounts will increase to $48,450 and $74,450 respectively.Social Security Holiday
     
  • Social Security holiday: Workers will get a 2 percentage-point break on their payroll tax for one year. Instead of paying 6.2% on wages up to $106,800, they will only have to pay 4.2% in 2011. On a $50,000 salary, this amounts to a $1,000 savings.
     
  • Expanded child tax credit: The bill retains the $1,000 child tax credit. This credit is even paid to those who have no tax liability, so if you don't owe any federal income tax but qualify for the credit, you'll receive it as a refund.
     
  • Extension of unemployment benefits: Jobless benefits for the long-term unemployed have been renewed for 13 months. More than 2 million Americans were set to lose their benefits if Congress didn't act.
     
  • Lower estate tax: At the insistence of Republicans, the plan includes a more generous estate tax provision: the first $10 million of a couple's estate (or $5 of an individual's estate) could pass to heirs without taxation. The balance is subject to a 35 percent tax rate..
     College tax savings
  • Savings for college students: A college tuition credit currently in place (the American Opportunity tax credit) remains in effect through 2010. Eligibility to take the $2,500 credit is limited to those with modified adjusted gross income below $90,000 ($180,000 for couples filing jointly). Currently, study commuters who use public transportation also receive a credit, which has been extended through 2011. This measure provides up to $1,000 a year in savings.
     
  • Extended investment tax rates: Everyone will get to keep their low investment tax rates for the next two years. For most people, that means their qualified capital gains and dividends would continue to be taxed at 15%. Low-income tax filers (those in the 10% and 15% brackets), however, will continue to enjoy a 0% tax rate on their capital gains or dividends.

As always, we're here for you!

We know you may have questions about how this tax bill will affect you, but rest assured that we'll look out for your best interest and make sure you receive every benefit you're entitled to.

If you have any bookkeeping, accounting needs, or tax-related questions, even during the holidays, we're available to help. Email us at [email protected].

We encourage you to check out our blog for regular tax updates, as well as the Resources section of our website, where we post archived Tax Tips newsletters, tax calculators, and IRS forms to download.

- Maco & Associates