In early December, President Obama and the Congressional Republicans struck a deal to extend the Bush-era tax cuts, which were set to expire at the end of 2010. Except for where stated, these are renewed for 2 years. What will this decision mean for you? Here is a great summary:
Payroll Taxes
Payroll taxes have been cut by 2% for all American workers, meaning instead of paying 6.2% on your wages, you will only have to pay 4.2% for tax year 2011. (Perhaps consider applying this unexpected 2% savings towards a personal retirement fund?)
Tax Brackets
The existing federal income tax bracket and rates will also remain the same (10%, 15%, 25%, 28%, 33%, and 35%).
Emergency Jobless Benefits
These benefits, which provide funds for up to 99 weeks to workers who have already used up state benefits will remain in effect through 2011
Tax Breaks
Several breaks for middle-class families have been extended, including the college tuition tax credit, the $1,000 child tax credit, and a higher earned income tax credit.
Marriage Penalty
The bill ensures that the standard deduction for married couples is exactly twice that of single filers, rather than more.
Estate Tax
The estate tax will come back into effect retroactively (beginning January 1, 2010), although it will be capped at a maximum rate of 35% and the exclusion amount raised to $5 million.
Alternative Minimum Tax
The amount of income that is exempt from this tax system in 2011 has been raised to $48,450 for single taxpayers and $74,450 for married couples filing jointly.
Small Businesses
Small businesses will be able to write off investments made in 2011.
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