The Deal on Tax Cuts: What it Means for You
Filed under: Tax, In the News
Yesterday, the White House and Congress appeared to reach a compromise that would extend the Bush tax cuts by two years. Assuming the measure passes without further tweaking (a fairly good bet), here's what those income tax measures mean for you:
- Lower Federal Income Tax Rates Remain for All Taxpayers for Two More Years. Under EGTRRA, federal income tax rates for individuals were lowered across the board. Those tax rates will remain in place under the compromise. That means the "new" 10% bracket won't disappear for taxpayers at the lower end, while rates for taxpayers at the higher end will be capped at 35%. In terms of dollars, this means that the average taxpayer family will avoid a 3% bump next year.
- Capital Gains Rates will Remain Steady. Capital gains rates had been lowered to 15% for long-term gains under EGTRRA (with an amazing 0% available to some taxpayers). That rate was expected to climb to 20% in 2011, but under the new plan, rates will remain "as is" for the next two years -- with a top rate for long-term gains of 15%.
- Alternative Minimum Tax (AMT) Relief Means Fewer Americans Will be Subject to the Tax. The income threshold for AMT had actually decreased in 2010 and beyond, rather than increase to account for cost of living and other adjustments. Under the compromise package, a two-year patch will raise the threshold beyond the existing income limits: $33,750 ($45,000 if married filing jointly or qualifying widow or widower; $22,500 if married filing separately).
- The Making Work Pay Credit Will End. The credit, which for 2009 and 2010 allowed working taxpayers to claim up to $400 for individual taxpayers and $800 for married taxpayers filing jointly in the form of a refundable credit, will be eliminated.
- The Full Child Tax Credit Will be Extended. The Child Tax Credit was slated to drop to $500 per child at the end of 2010. Under the compromise, the credit will remain at $1,000 per child for the next two years. Additionally, the $3,000 income threshold for the child tax credit will remain in place. This means, so as long as taxpayers have one or more qualifying children and earned income of more than $3,000, a refundable credit may apply.
- The Earned Income Tax Credit (EITC) Will Not Be Adjusted Down for Two More Years. The EITC is a refundable federal income tax credit aimed at low- to moderate-income working individuals and families. To qualify for the credit, you must have earned income from wages or self-employment. The expanded credit allows more families to qualify since the planned increase in eligibility income won't happen.
- The American Opportunity Tax Credit (AOTC) Will Not Expire. The AOTC modified the existing Hope Credit to allow families a credit for tuition and expenses paid by students pursuing a college degree. The partially refundable tax credit was slated to drop back to $1,800 in 2011. Now, the credit remains at $2,500 for the next two years.
- Payroll Tax "Holiday" in Place. The deal also includes a one-year cut in payroll taxes for workers, from 6.2% to 4.2%. The tax is linked to Social Security contributions, which means it's only applicable to the first $106,800 of wages. The reduction means that a worker earning $50,000 would pay $1,000 less for 2011; the payroll tax rate is slated to return to 6.2% in 2012.
Of course, keep in mind that these changes have been agreed-to in principle, but the ink isn't dry on the bill just yet. Check back with WalletPop for any last-minute updates!
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Reader Comments (Page 1 of 2)
12-07-2010 @ 4:10PM
BV said...
What is in it for we Seniors???????We haven't had a Social Security increase in two years..........................
Reply
12-07-2010 @ 4:20PM
Ray said...
Nothing in it for Seniors. You have to be a deadbeat who wants paid for not working or an illegal to qualify for handouts under the Dems regime.
12-07-2010 @ 5:30PM
Mark said...
Social Security raises are based on CPI results,Thanks to Republicans the law that produced this result was signed July 1, 1972 – by President Richard Nixon, a Republican. And Nixon claimed credit for pushing it through Congress. Republicans don't care about poor people making $250,000 or less
12-07-2010 @ 5:50PM
catherine pierce said...
succinctly, we need responsible tax collection and responsible spending of the taxes collected and we have neither. so what do we do???
12-07-2010 @ 7:59PM
Nick said...
NODA! if they had it there way they would reduce our benefits and cut back medicare,
They do not care about helping seniors
12-07-2010 @ 8:01PM
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12-07-2010 @ 4:39PM
Efreb said...
To Ray; From the way you express yourself, you will never be a senior and if you do you, will regret it, Have a nice day.
Reply
12-07-2010 @ 4:47PM
hatras said...
Come on, BV. SS increases are based on inflationary
increases, they are NOT automatic. I am a senior, but do not believe the government must take care of we
old bods 100%.
Reply
12-07-2010 @ 4:53PM
roosboys said...
The wealthy need this tax break to keep on partying! Just cut social security, medicare, va benefits, etc. middle class just tighten your belt and bend over! Now that the wealthy have their christmas present, it will be time to scream deficit, Americas going broke, cut, cut, cut...stay tuned
Reply
12-07-2010 @ 9:16PM
Dennis Phelps said...
Yes, the SSA beneficiaries are not getting any Cost of Living adjustment (again); imagine that! Wouldn't we all like to know where the cost has not increased, 'cause we'll all want to move there tomorrow.
In reality, the calculations were probably manipulated to come up with the "desired" no-increase result.
Figures Don't Lie; Liars Figure!
Reply
12-07-2010 @ 5:41PM
STEVE said...
Ever notice how the Democrats always find a dog to kick?
Remember in the 80's and 90's how they drug up the homeless every time an election came by? And how they totally ignored them right after the elections?
Remember how they jumped all over "global cooling" in the 70's, rode it for a while, then dumped it in favor of "global warming"?
They've grabbed on to Wall Street, Insurance companies, big business, healthcare, the banks...ad nauseum. Jamming them and villifying them at will, and getting the public all riled up and spitting nails. It didn't matter thatall of those entities were doing nothing that Congress, usually in the hands of the democrats, hadn't legislated as legal.
The Dems have been great at creating "boogeymen" for their followers to tear in to.
And, remember the late 80's and eary 90's, when everything ther Dems spoke about was a "crisis". The homeless crisis, the weather crisis, the social security crisis, the housing crisis, the public schools crisis...on and on and on. Everything in crisis...didn't matter that they were in charge when all these crisis took place and were usually a direct result of their policies.
And they call the Republicans the party of fear.
And now, we have the "rich". Those dirty devils!!!! They get a tax break!!! It doesn't matter that they pay abouit 75% of all income taxes paid. Imagine, less than 10% of the population is paying 75% of the bill for the other 232,500,000 people in the country, and the Dems have the 232.200.000 pissed at them for not paying more. The same Dems that have passed legislation that has roughly half the country paying little or NO tax at all.
Seems the Dems are a "one trick pony". They foster class envy and jealousy, pitting one American against another, and have done so for my entire 56 years of life.
I can't think of anything less "American" than pitting us against each other, to keep us focused on what the other guy has, and sightless for what they are doing to ALL of us.
And, unfortunately, there are still a whole lot of people out there, that are too stupid to realize that they've been had.
Reply
12-07-2010 @ 7:07PM
Jean said...
The president and republicans (according to Americans for Legal Immigration this afternoon) have done some other deal making. The president gives them tax cuts and the republicans vote yes on dream act amnesty. Looks like we'll be paying and paying and paying.
Reply
12-07-2010 @ 7:13PM
buck said...
Steve: I agree with your assessment 100% (Dems always need a dog to kick). Now, as the dust settles, we will have a huge society on welfare ---- with ANOTHER extension of the un-employment compensation -- this is plain stupid to continue this! I recall in the late 1980's when traveling in the Soviet Union, seeing people in fields "watching a few head of cattle" and seeing 8-10 waiters in a Gov't Hotel that actually needed 2 or 3 ---------------------- all these people were on the "Government's payroll" !!!!! Yup, no unemployment...they were simply all paid by the taxpayers. We, in the USA, are moving that way with the continuance of the unemployment compensation hand outs !!!!!!!!!!!!!!!!!
Reply
12-07-2010 @ 7:47PM
Jim said...
Seniors?, HaHaHaHa, you will take a haircut and like it. Social Security will slowly be cut. A little here and a little there. The working people can expect nothing from social security when we retire. This is what happens to a society when they live high on the hog. Our best days are behind us, enjoy yourself while you can, it's all falling apart, enjoy yourself.
Reply
12-07-2010 @ 9:29PM
Grammie said...
Buck, Obviously you still have your job. Granted, alot are taking advantage of the benefits, but far more are not. Those benefits are thier sole lifeline to provide for thier families.
Alot of articles you read on here try to make everything look rosy , that the economy is improving and that jobs are popping up all over. NOT TRUE! Today, here in Williamsport PA, 2 companies closed thier doors that have been in buisiness here for years. Over 300 out of jobs in a 5 mi. radius, in one day! There are no jobs around here. What are people supposed to do? Relocating isn't always an option, and where do you go because the same thing is happening just about everywhere. Until you find yourself out of work with a family to provide for and you are facing your benefits ending, don't be so critical of the unemployed. It's really a scarey place to be, and no, I'm not unemployed, I just have a little compassion for these folks cause i know so many of them.
12-07-2010 @ 7:58PM
Nick said...
our political leaders changed the formula, took out energy costs, and food costs, then told us there was not inflation so no increases.
You not they all got nice raises, and gold plated medical, retirement, and benefits.
You will never get them to quit paying themselves big raises, and or cutting their benefits.
They will sure draw down on seniors fast through, did not stop the government from robbing the social security trust funds to use the money, replaced the hard earned dollars we paid in with useless I.O.U's
Reply
12-07-2010 @ 9:35PM
dcnash said...
Those things are still encluded in the estimate. Housing prices went down more that the cost of everything that went up combined.
12-07-2010 @ 8:50PM
Edmundo said...
Hmmm . . . let's see. Some one out of work for 2 years receives an extension of unemployment benefits . . . just so the rich can continue receiving their +10% tax savings on incomes of over $250k).
Not a bad trade! The unemployed receive ~$300-500.00 a month and those earning over $250k receive ~10+ tax savings of how much?? Well it appears to be ~$2000.00+ a month Hmmm . . . hope those earning $250k+ can eat well while those unemployed can enjoy their HUGH monthly incomes!
Not sarcastic - just realistic about the fact that something sees out of balance here - - that our representatives inside of the Beltway don't see (or politically don't want admit).
Reply
12-07-2010 @ 8:59PM
hwyman said...
Be very afraid of that last one (payroll tax holiday) while you might be bringing home a little more each week/month whatever, you;re INCOME tax rates will not change, you will pay this back or get far less of a return
Reply
12-07-2010 @ 9:47PM
john said...
why don't we just collect all our taxes and give it to the seniors. Afterall, it is just the seniors that haven't seen a raise in two years, right?
Reply