Summary of Tax Cuts
Washington, December 21, 2010
President Obama has signed the new tax cuts into law (Public Law No: 111-312). Congressman Scott spoke in favor of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which extends unemployment insurance, cuts payroll taxes and extends existing tax rates for two years. You can watch the Congressman’s speech at this link.
A summary of some of the larger sections of the law are provided below. For more detailed information about the tax law, speak with a tax advisor or visit the IRS website at: http://www.irs.gov/
The law extends unemployment benefits at their current level through the end of 2011.
PAYROLL TAX CUT FOR WORKERS
The law creates a new 2% payroll tax cut for over 155 million workers.
JOB CREATING TAX CUTS FOR WORKING FAMILIES
Child Tax Credit: The current $1,000 child tax credit will be extended for two years. This extension will ensure an ongoing tax cut to 10.5 million lower income families with 18 million children.
Reductions in individual income tax rates. The law extends the existing individual income tax brackets for two years.
Capital Gains and Dividends. The law extends the current capital gains and dividends rates for all taxpayers for an additional two years. Under current law, the capital gains and dividend rates for taxpayers below the 25% bracket is equal to zero percent. For those in the 25% bracket and above, the capital gains and dividend rates are currently 15%.
The law extends the dependent care credit through 2012. The dependent care credit allows a taxpayer a credit for an applicable percentage of child care expenses for children under 13 and disabled dependents.
Extends adoption tax credits. Taxpayers that adopt children can receive a tax credit for qualified adoption expenses. A taxpayer may also exclude from income adoption expenses paid by an employer.
Extends the credit for employer expenses for child care assistance.
Earned Income Tax Credit (EITC). The law extends third-child EITC. Under current law, working families with two or more children currently qualify for an earned income tax credit equal to 40% of the family’s first $12,570 of earned income.
EDUCATION TAX CREDITS
American Opportunity Tax Credit: The law extends a partially refundable tax credit of up to $2,500 to help students and their families cover the cost of college tuition.
Extends Coverdell Education Savings Accounts. These plans are tax-exempt savings accounts, up to $2,000, used to pay the higher education expenses of a designated beneficiary.
Extends the expanded exclusion for employer-provided educational assistance. An employee may exclude from gross income up to $5,250 for income and employment tax purposes per year of employer-provided education assistance.
Extends the student loan interest deduction.
Extends the above-the-line deduction for certain expenses of elementary and secondary school teachers. Teachers and other school professionals may deduct expenses paid or incurred for books, supplies, computer equipment and supplementary materials used by the educator in the classroom.
BUSINESS TAX CUTS TO INCREASE INVESTMENT AND GROWTH:
Extends the R&D tax credit: The law includes a 2-year extension of the R&D tax credit and other tax incentives to support business expansion.
Extends the New Markets Tax Credit. Under this program, tax credits encourage significant private investment in businesses in low-income communities.
Employer wage credit for activated military reservists. The law extends for two years the provision that provides eligible small business employers with a credit against the taxpayer’s income tax liability for salaries of activated military reservists.
Work opportunity tax credit (WOTC). Under current law, businesses are allowed to claim a work opportunity tax credit for new hires in targeted areas.
Exclusion of small business capital gains. Generally, non-corporate taxpayers may exclude 50 percent of the gain from the sale of certain small business stock acquired at original issue and held for more than five years. The provision extends the 100 percent exclusion of the gain from the sale of qualifying small business stock that is acquired before January 1, 2012 and held for more than five years.
Extension of bonus depreciation. Under current law, businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. For investments placed in service after September 8, 2010 and through December 31, 2011, the law provides for 100 percent bonus depreciation. For investments placed in service after December 31, 2011 and through December 31, 2012, the bill provides for 50 percent bonus depreciation.