This measure extends tax cuts for families at every income level, renews jobless benefits for the long-term unemployed and enacts a new one-year cut in Social Security taxes that would benefit nearly every worker who earns a wage.
Sweeping tax cuts enacted when George W. Bush was president were extended for two years, placing the issue squarely in the middle of the next presidential election, in 2012.
The extended tax cuts include lower rates for the rich, the middle class and the working poor, a $1,000-per-child tax credit, tax breaks for college students and lower taxes on capital gains and dividends. The bill also extends through 2011; a series of business tax breaks designed to encourage investment that expired at the end of 2009.
Workers’ Social Security taxes would be cut by nearly a third, going from 6.2 percent to 4.2 percent, for 2011. A worker making $50,000 in wages would save $1,000; one making $100,000 would save $2,000.
The measure includes an estate tax that would allow the first $10 million of a couple’s estate to pass to heirs without taxation. The balance would be subject to a 35 percent tax rate.
Here’s a look at the key elements of the package:
- The current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
- Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
- A two-year AMT “patch” for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT. Without the patch, an estimated 21 million additional taxpayers would have owed AMT for 2010.
- The new law extends the $1,000 child tax credit and maintains its expanded refund ability for two years, extends rules expanding the earned income credit for larger families and married couples, and extends the higher education tax credit (the American Opportunity tax credit) and its partial refund ability for two years.
- Businesses can write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.
- Many of the “traditional” tax extenders are extended for two years, retroactively to 2010 and through the end of 2011. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit.
- After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. Estates of people who died in 2010 can choose to follow either 2010′s or 2011′s rules.
- Tax break for commuters who use mass transit.
- Increased standard deduction for married couples.
- Not included: Extension of the Build America Bonds program, which permits state and localities to issue federally-subsidized municipal bonds and no repeal of the controversial expansion of Form 1099 reporting requirements.










