Extended Tax Cuts and Credits
The 2010 Act extended the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003, also known as the Bush tax cuts, through the end of 2012. These cuts include lower tax brackets, lower tax rates on dividends and capital gains, and patch to the Alternative Minimum Tax so that 21 million taxpayers are not subject to increased AMT.
Several Obama tax credits and incentives established by the American Recovery and Reinvestment Act of 2009 were also extended, including expansions to the Child Tax and Earned Income Tax Credits and the American Opportunity Tax Credit. The Nonbusiness Energy Property Tax Credit, which allows taxpayers to receive a credit for qualified energy-efficient property, was extended with some limitations. The credit amount is 10 percent of the cost of the item, as opposed to 30 percent, and the maximum lifetime credit is $500 instead of $1,500.
Payroll Tax Cut
For 2011 only, the amount of Social Security tax deducted from an employee’s pay is reduced to 4.2 percent, down from 6.2 percent in other years. Employers continue to pay 6.2 percent for their portion of the Social Security tax. This tax cut replaces the Making Work Pay Credit, and has received some criticism since it provides less relief for lower-income families. The Credit gave workers a $400 tax credit, while under the new Act an employee would need to make $20,000 per year to see a $400 tax reduction. The Making Work Pay Credit expires on December 31, 2010.
Extended Unemployment Insurance Benefits
Emergency unemployment benefits were extended under the Act, through the end of 2011. This affects nearly 7 million unemployed people who would have lost their benefits in late 2010 and 2011. The extended unemployment insurance benefits only apply to people who have not reached their maximum weeks of unemployment, and does not increase the maximum benefits duration. Depending on the state unemployment rate, benefits are available for a maximum of 60 to 99 weeks.
Estate Tax Cut
A reduction in the estate tax was the largest point of controversy in the deal struck between President Obama and the Republicans in Congress. The Economic Growth and Tax Relief Reconciliation Act of 2001 dramatically reduced the tax wealthy individuals paid on their estates. The amount of an estate exempt from any tax was $675,000 in 2001 and increased to $3,500,000 in 2009; the estate tax rate in 2001 was 55 percent and decreased to 45 percent in 2009. In 2010 there was no tax on any size estate.
The 2010 Act provides an exemption on estates up to $5,000,000, at which point the tax rate is 35 percent. The House of Representatives proposed an amendment to this portion of the Act, which changed the proposed estate tax to the 2009 levels of a $3,500,000 exemption and 45 percent tax rate. The amendment failed to pass, but some House Democrats felt voting in support of it allowed them to express their disagreement with the estate tax provision, while ultimately voting in favor of it in order to pass other legislation that benefits middle-class American families.
Tax Incentives for Businesses
One of the compromises between President Obama and Republican Congressional leaders was a one-year business tax incentive. For 2011 only, businesses can expense 100 percent of all their investments; normally, for some expenses only a portion can be deducted each year, for several years. The 2010 Act also extends the research tax credit for businesses. Other incentives include those for businesses that use alternative fuels or manufacture energy-efficient homes.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 will provide an estimated $213 billion in tax relief to working families, $114 billion to high-income families, and $25 billion in job creation through 2012. A typical working family will avoid a $3,000 tax increase due to extended tax cuts and credits, according to President Obama. Tax credits and incentives are likely to be a major topic of debate over the next two years, leading up to the 2012 presidential campaign.
The White House: Tax Cuts, Unemployment Insurance, and Jobs - https://www.whitehouse.gov/issues/taxes/tax-cuts
Center on Budget and Policy Priorities: How Many Weeks of Unemployment Compensation Are Available? - https://www.cbpp.org/cms/index.cfm?fa=view&id=3164