http://www.irs.gov/newsroom/article/0,,id=234882,00.html
Video: IRS2Go: English
IR-2011-8, Jan. 24, 2011
WASHINGTON — The Internal Revenue Service today unveiled IRS2Go, its first smartphone application that lets taxpayers check on their status of their tax refund and obtain helpful tax information.
"This new smart phone app reflects our commitment to modernizing the agency and engaging taxpayers where they want when they want it," said IRS Commissioner Doug Shulman. "As technology evolves and younger taxpayers get their information in new ways, we will keep innovating to make it easy for all taxpayers to access helpful information."
The IRS2Go phone app gives people a convenient way of checking on their federal refund. It also gives people a quick way of obtaining easy-to-understand tax tips.
Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app.
"This phone app is a first step for us," Shulman said. "We will look for additional ways to expand and refine our use of smartphones and other new technologies to help meet the needs of taxpayers."
The mobile app, among a handful in the federal government, offers a number of safe and secure ways to help taxpayers. Features of the first release of the IRS2Go app include:
Get Your Refund Status
Taxpayers can check the status of their federal refund through the new phone app with a few basic pieces of information. First, taxpayers enter a Social Security number, which is masked and encrypted for security purposes. Next, taxpayers pick the filing status they used on their tax return. Finally, taxpayers enter the amount of the refund they expect from their 2010 tax return.
For people who e-file, the refund function of the phone app will work within about 72 hours after taxpayers receive an e-mail acknowledgement saying the IRS received their tax return.
For people filing paper tax returns, longer processing times mean they will need to wait three to four weeks before they can check their refund status.
About 70 percent of the 142 million individual tax returns were filed electronically last year.
Get Tax Updates
Phone app users enter their e-mail address to automatically get daily tax tips. Tax Tips are simple, straightforward tips and reminders to help with tax planning and preparation. Tax Tips are issued daily during the tax filing season and periodically during the rest of the year. The plain English updates cover topics such as free tax help, child tax credits, the Earned Income Tax Credit, education credits and other topics.
Follow the IRS
Taxpayers can sign up to follow the IRS Twitter news feed, @IRSnews. IRSnews provides the latest federal tax news and information for taxpayers. The IRSnews tweets provide easy-to-use information, including tax law changes and important IRS programs.
IRS2Go is the latest IRS effort to provide information to taxpayers beyond traditional channels. The IRS also uses tools such as YouTube and Twitter to share the latest information on tax changes, initiatives, products and services through social media channels. For more information on IRS2Go and other new media products, visit www.IRS.gov.
Related Item: IRS Goes Mobile With IRS2Go
Monday, January 24, 2011
What's New on the 2010 Form 1040
http://finance.yahoo.com/taxes/article/111872/whats-new-on-1040-in-2010
by Bill Bischoff
Monday, January 24, 2011
By now, some of you may already have your 2010 W-2 and 1099s in hand. If not, it won't be long. So it's not too soon to think about starting your 2010 Form 1040. Before you begin, there are some key changes to note. Here's what you need to know.
Due Date is April 18
Even though April 15 falls on a Friday this year, the deadline for your 2010 Form 1040 is Monday April 18. Reason: Emancipation Day is a District of Columbia holiday, and it falls on April 15. So the tax filing deadline for the whole nation is deferred to April 18 . If your return won't be ready by then, you can extend the deadline all the way out to October 17 by filing Form 4868 on or before April 18.
No More Phase-Outs for Itemized Deductions and Exemptions
For years, high-income folks have seen their write-offs for the most popular itemized deduction items (including mortgage interest, state and local income and property taxes, and charitable donations) reduced by a nasty phase-out rule. Another nasty phase-out rule reduced or eliminated personal and dependent exemption deductions. Thankfully, both phase-outs were completely repealed for 2010 as part of the Bush-era tax cuts. So you can write off the full amount of your itemized deductions and exemptions on your 2010 Form 1040 without any worries and without having to fill out phase-out worksheets to penalize yourself. More good news: the recent tax cut extension legislation repealed the phase-outs for 2011 and 2012 as well.
Liberalized Adoption Credit
For 2010, the maximum adoption credit was increased to $13,170 (up from $12,150 in 2009). In addition, the credit was made 100% refundable for the 2010 tax year (previously, it was nonrefundable). That means you'll receive a check for any leftover adoption credit after your federal income tax bill has been reduced to zero. To claim the credit, fill out Form 8839 (Qualified Adoption Expenses), and enter the credit on line 71 of Form 1040.
One-Time Break for Self-Employed Individuals
Self-employed folks can generally deduct their health insurance premiums on page 1 of Form 1040 (use line 29 for 2010). The deduction reduces their federal income tax bills, which is nice. However, the self-employed have never been allowed to deduct those premiums when calculating their self-employment tax bills on Schedule SE. Good news: for 2010 only, you can deduct health insurance premiums on line 3 of Schedule SE. So those premiums will reduce both your income tax bill and your SE tax bill. Unfortunately, this break will not be available for 2011 and beyond unless Congress extends it.
Homebuyer Credit Repayment Rules Kick In
As I explained in an earlier column, you may have to repay part or all of the credit claimed for a 2008 or 2009 home purchase with your 2010 Form 1040.
In most cases, however, only those who purchased homes in 2008 will be affected. They will generally have to repay 1/15 of the credit with the 2010 Form 1040. If this rule impacts you, fill out Form 5405 (First-Time Homebuyer Credit and Repayment of the Credit), and enter the repayment amount as an addition to your tax bill on line 59 of Form 1040.
Real Estate Tax Deduction for Non-Itemizers is Gone
For 2008 and 2009, unmarried individuals who did not itemize could write off up to $500 of state and local real property taxes by claiming an increased standard deduction. Married joint-filing couples could write off up to $1,000. This add-on standard deduction deal for real estate taxes expired at the end of 2009, and it was not reinstated for 2010.
Deductions for Sales Taxes on New Vehicle Purchases Are Gone
The 2009 Stimulus Act created a temporary write-off for non-itemizers who paid state and local sales taxes on new vehicles purchased between 2/17/09 and 12/31/09. The write-off came in the form of an additional standard deduction allowance. Similarly, itemizers were allowed to claim an extra itemized deduction for such taxes. Both breaks lapsed at the end of 2009, and they were not reinstated for 2010.
Break for Unemployment Benefits Is Gone
In 2009, the first $2,400 of unemployment benefits was federal-income-tax-free. This break was not continued for 2010. Therefore, 100% of 2010 unemployment benefits generally must be reported as income on Form 1040 (use line 19).
Your Tax Preparer Might E-File Your Return This Time
Over the last few years, Congress has made tax-law changes that place increasing pressure on professional return preparers to electronically file more and more returns. As a result, your preparer might be forced to e-file your 2010 Form 1040 even if your returns for earlier years have always been done on paper. Get used to it.
by Bill Bischoff
Monday, January 24, 2011
By now, some of you may already have your 2010 W-2 and 1099s in hand. If not, it won't be long. So it's not too soon to think about starting your 2010 Form 1040. Before you begin, there are some key changes to note. Here's what you need to know.
Due Date is April 18
Even though April 15 falls on a Friday this year, the deadline for your 2010 Form 1040 is Monday April 18. Reason: Emancipation Day is a District of Columbia holiday, and it falls on April 15. So the tax filing deadline for the whole nation is deferred to April 18 . If your return won't be ready by then, you can extend the deadline all the way out to October 17 by filing Form 4868 on or before April 18.
No More Phase-Outs for Itemized Deductions and Exemptions
For years, high-income folks have seen their write-offs for the most popular itemized deduction items (including mortgage interest, state and local income and property taxes, and charitable donations) reduced by a nasty phase-out rule. Another nasty phase-out rule reduced or eliminated personal and dependent exemption deductions. Thankfully, both phase-outs were completely repealed for 2010 as part of the Bush-era tax cuts. So you can write off the full amount of your itemized deductions and exemptions on your 2010 Form 1040 without any worries and without having to fill out phase-out worksheets to penalize yourself. More good news: the recent tax cut extension legislation repealed the phase-outs for 2011 and 2012 as well.
Liberalized Adoption Credit
For 2010, the maximum adoption credit was increased to $13,170 (up from $12,150 in 2009). In addition, the credit was made 100% refundable for the 2010 tax year (previously, it was nonrefundable). That means you'll receive a check for any leftover adoption credit after your federal income tax bill has been reduced to zero. To claim the credit, fill out Form 8839 (Qualified Adoption Expenses), and enter the credit on line 71 of Form 1040.
One-Time Break for Self-Employed Individuals
Self-employed folks can generally deduct their health insurance premiums on page 1 of Form 1040 (use line 29 for 2010). The deduction reduces their federal income tax bills, which is nice. However, the self-employed have never been allowed to deduct those premiums when calculating their self-employment tax bills on Schedule SE. Good news: for 2010 only, you can deduct health insurance premiums on line 3 of Schedule SE. So those premiums will reduce both your income tax bill and your SE tax bill. Unfortunately, this break will not be available for 2011 and beyond unless Congress extends it.
Homebuyer Credit Repayment Rules Kick In
As I explained in an earlier column, you may have to repay part or all of the credit claimed for a 2008 or 2009 home purchase with your 2010 Form 1040.
In most cases, however, only those who purchased homes in 2008 will be affected. They will generally have to repay 1/15 of the credit with the 2010 Form 1040. If this rule impacts you, fill out Form 5405 (First-Time Homebuyer Credit and Repayment of the Credit), and enter the repayment amount as an addition to your tax bill on line 59 of Form 1040.
Real Estate Tax Deduction for Non-Itemizers is Gone
For 2008 and 2009, unmarried individuals who did not itemize could write off up to $500 of state and local real property taxes by claiming an increased standard deduction. Married joint-filing couples could write off up to $1,000. This add-on standard deduction deal for real estate taxes expired at the end of 2009, and it was not reinstated for 2010.
Deductions for Sales Taxes on New Vehicle Purchases Are Gone
The 2009 Stimulus Act created a temporary write-off for non-itemizers who paid state and local sales taxes on new vehicles purchased between 2/17/09 and 12/31/09. The write-off came in the form of an additional standard deduction allowance. Similarly, itemizers were allowed to claim an extra itemized deduction for such taxes. Both breaks lapsed at the end of 2009, and they were not reinstated for 2010.
Break for Unemployment Benefits Is Gone
In 2009, the first $2,400 of unemployment benefits was federal-income-tax-free. This break was not continued for 2010. Therefore, 100% of 2010 unemployment benefits generally must be reported as income on Form 1040 (use line 19).
Your Tax Preparer Might E-File Your Return This Time
Over the last few years, Congress has made tax-law changes that place increasing pressure on professional return preparers to electronically file more and more returns. As a result, your preparer might be forced to e-file your 2010 Form 1040 even if your returns for earlier years have always been done on paper. Get used to it.
Thursday, January 20, 2011
IRS will start processing tax returns under the GOP-Obama tax deal on Feb 14
The IRS has announced that February 14 will be the start date for taxpayers who file returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917, or the educator expenses deduction. (IR-2011-7) The IRS had earlier announced that due to changes made by the 2010 Tax Relief Act, those taxpayers would not be able to file until “mid- to late February.” (IR-2010-126)
The late start date affects both e-filed and paper returns. For returns not containing any of those items, e-file was open for business on January 14. (IR-2011-4)
Taxpayers may file their California returns now, provided the federal return has been completed. The state has not delayed filing for the above-mentioned taxpayers. But from a practical point of view, affected taxpayers should probably wait to file their tax returns.
Monday, January 3, 2011
Franchise Tax Board Opens Filing Season for State Taxes
01.03.2011
Sacramento - The Franchise Tax Board (FTB) today announced it is now accepting 2010 state tax returns. Also, FTB provides the following updates on law changes and filing services.
"FTB's website offers free tax filing services, help with account matters, and information about the federal Earned Income Tax Credit that can put thousands of dollars in families' wallets," said State Controller and FTB Chair John Chiang.
Final filing date is Monday, April 18 -- Since Friday, April 15, is a legal holiday in Washington DC (Emancipation Day), the IRS has announced that taxpayers nationwide have until the following business day, Monday, April 18, to timely file returns and pay taxes. California will accept as timely, tax returns and payments received on April 18.
Tax booklets no longer mass mailed - FTB no longer mass mails tax booklets to taxpayers. Tax booklets, which contain tax forms and instructions, are available online at ftb.ca.gov. FTB's website offers many e-file options, including FTB's free CalFile and ReadyReturn services, as well as free and fee-based services offered by private companies. Many post offices and libraries also stock tax booklets. Taxpayers who are unable to obtain a tax booklet can call FTB at 800.338.0505 to request one.
Form 540 2EZ now available in Spanish-FTB's "short form" is now avaible in both English and Spanish. The 2EZ is designed for taxpayers whose income is mostly from wages, take the standard deduction, have up to three dependents, and have no adjustments to income.
Standard deduction - The standard deduction for single or filing separately tax statuses increased from $3,637 to $3,670. For joint, surviving spouse, or head of household filers, it increased from $7,274 to $7,340.
Personal exemption credit - The personal exemption amount for single, filing separately, and head of household filers increased from $98 to $99. For joint or surviving spouses, it increased from $196 to $198. The dependent exemption credit is also $99 per dependent.
New Jobs tax credit still available - Starting in 2009, this incentive provides a tax credit of up to $3,000 for each added qualified full-time employee hired by a qualified small business employer. Funding is limited to $400 million. As of January 1, $360 million remains available. The credit must be claimed on a timely-filed original (not amended) 2010 return received before the $400 million limit is exhausted.
Generally speaking, employers qualify for the credit if they employed 20 or fewer employees in the prior year. They have a net increase in qualified full-time employees in 2010 compared to the number of full-time employees employed in the prior year.
Net operating losses suspended - For 2010 and 2011, net operating losses from prior years cannot be deducted by certain taxpayers. The net operating loss suspension rules do not apply to taxpayers with net income of less than $300,000 or with disaster loss carryovers.
Voluntary Contribution Funds - Taxpayers can contribute to one or more charitable causes directly from the state tax form. New on the 2010 tax return are the:
Free Do-it-Yourself Services -- FTB encourages taxpayers and practitioners to explore its many self-service applications available through FTB's website:
Sacramento - The Franchise Tax Board (FTB) today announced it is now accepting 2010 state tax returns. Also, FTB provides the following updates on law changes and filing services.
"FTB's website offers free tax filing services, help with account matters, and information about the federal Earned Income Tax Credit that can put thousands of dollars in families' wallets," said State Controller and FTB Chair John Chiang.
Final filing date is Monday, April 18 -- Since Friday, April 15, is a legal holiday in Washington DC (Emancipation Day), the IRS has announced that taxpayers nationwide have until the following business day, Monday, April 18, to timely file returns and pay taxes. California will accept as timely, tax returns and payments received on April 18.
Tax booklets no longer mass mailed - FTB no longer mass mails tax booklets to taxpayers. Tax booklets, which contain tax forms and instructions, are available online at ftb.ca.gov. FTB's website offers many e-file options, including FTB's free CalFile and ReadyReturn services, as well as free and fee-based services offered by private companies. Many post offices and libraries also stock tax booklets. Taxpayers who are unable to obtain a tax booklet can call FTB at 800.338.0505 to request one.
Form 540 2EZ now available in Spanish-FTB's "short form" is now avaible in both English and Spanish. The 2EZ is designed for taxpayers whose income is mostly from wages, take the standard deduction, have up to three dependents, and have no adjustments to income.
Standard deduction - The standard deduction for single or filing separately tax statuses increased from $3,637 to $3,670. For joint, surviving spouse, or head of household filers, it increased from $7,274 to $7,340.
Personal exemption credit - The personal exemption amount for single, filing separately, and head of household filers increased from $98 to $99. For joint or surviving spouses, it increased from $196 to $198. The dependent exemption credit is also $99 per dependent.
New Jobs tax credit still available - Starting in 2009, this incentive provides a tax credit of up to $3,000 for each added qualified full-time employee hired by a qualified small business employer. Funding is limited to $400 million. As of January 1, $360 million remains available. The credit must be claimed on a timely-filed original (not amended) 2010 return received before the $400 million limit is exhausted.
Generally speaking, employers qualify for the credit if they employed 20 or fewer employees in the prior year. They have a net increase in qualified full-time employees in 2010 compared to the number of full-time employees employed in the prior year.
Net operating losses suspended - For 2010 and 2011, net operating losses from prior years cannot be deducted by certain taxpayers. The net operating loss suspension rules do not apply to taxpayers with net income of less than $300,000 or with disaster loss carryovers.
Voluntary Contribution Funds - Taxpayers can contribute to one or more charitable causes directly from the state tax form. New on the 2010 tax return are the:
- Arts Council Fund.
- California Police Activities League (CALPAL) Fund.
- California Veterans Homes Fund.
- Safely Surrendered Baby Fund.
Free Do-it-Yourself Services -- FTB encourages taxpayers and practitioners to explore its many self-service applications available through FTB's website:
- ReadyReturn - Taxpayers who file the simplest returns may qualify for FTB's online ReadyReturn program. FTB uses information it already has to complete a tax return for the taxpayer. The taxpayer just needs to review the return, make any needed changes, and click a button to send it directly to FTB. More than 2 milliontaxpayers will qualify who last year: (1) Earned wages from a single employer. (2) Filed either as single or head of household. (3) Took the standard deduction. (4) Claimed no more than five dependents. (5) Taxpayers who are renters and who can be claimed as a dependent are also eligible.
- CalFile -More than 6.4 million taxpayers are qualified to use CalFile, FTB's no-cost, direct-to-FTB, online filing program. Taxpayers enter their tax information on FTB's secure website and transmit their return directly to FTB. CalFileaccepts taxpayers with income of up to $324,376, itemized deductions, and some tax credits.
- Access Your Account -This online service allows taxpayers to change their address or phone number and get information such as estimated tax payments, any balances due, state W-2 information, or FTB-issued 1099 forms. Taxpayers and tax professionals complete a one-time registration process where they choose their own user name and password. This service eliminates the need for taxpayers to get a customer service number each year.
- Check Your Refund Status -After filing the 2010 tax return, taxpayers can use this service to see where their refund is. e-filed returns claiming refunds and opting for direct deposit are generally issued within seven days and mailed refund checks are generally sent within two weeks. Paper-filed returns take longer, up to six to eight weeks depending on the time of year the return is filed. This service is also available in Spanish.
- Pay Taxes Online - FTB's Web Pay allows taxpayers to authorize a payment from their bank account to pay their return balance due or extension payment. Payment must be made on or before April 18, to avoid penalties and interest. Taxpayers can also make estimated tax or any bill payments online, and sign up for email reminders of upcoming estimate payment due dates. Taxpayers can schedule payments up to one year in advance. For a fee, taxpayers can pay their taxes with their American Express, Discover/NOVUS, MasterCard, and Visa cards.
- Request a Monthly Payment Plan - FTB offers monthly installment payment plans to people who cannot pay what they owe on time. Taxpayers who owe less than $25,000 and can repay the tax within five years generally qualify. Sign up online at ftb.ca.gov and select installment agreement request.
- Get Answers to Frequently Asked Questions - Find answers to questions about various tax topics such as return filing requirements, tax credits, and the requirements to be able to use the Head of Household filing status online at ftb.ca.gov.
- Phone service - FTB provides automated toll-free phone service at 800.338.0505. To speak with a customer service representative, FTB staffs its general toll-free phone line, 800.852.5711, from 7 a.m. to 5 p.m., weekdays excluding state holidays.
- Field Offices- FTB has six regional field offices that provide walk-in service from 8 a.m. to 5 p.m., weekdays in Los Angeles, Oakland, Sacramento, San Diego, San Francisco, and Santa Ana. For directions, visit ftb.ca.gov and click on the Contact Us tab.
- Voluntary Income Tax Assistance - Starting February 1, more than 1,000 centers statewide open through the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. These sites offer free help with tax form preparation.Some offer services in Spanish, Chinese, Vietnamese, and Korean. For information on locations throughout California, visit ftb.ca.gov and click on the free filing assistance link.
- Federal Earned Income Tax Credit- This is a federal incentive for low-income individuals and families. Taxpayers earning less than $48,362 can qualify for a "refundable" credit that can total up to $5,666. "Refundable" means that you do not have to have a tax liability to get a refund check from the government. If you think you might qualify, visit the IRS website at irs.govand search for EITC Assistant. California has no comparable state credit.
- FTB using Social Media - FTB is using Twitter, Facebook, and YouTube to share information regarding the coming state income tax filing season. Three instructional YouTube videos highlight the ease of using CalFile, ReadyReturn, and FTB's recently updated Access Your Account feature. "California Tax Tips" offer tips about taxes in videos of 60 seconds or less.
- Recordkeeping - Keep a copy of your state tax returns and all supporting records. FTB may request information from you regarding your tax return at any time within the California statute of limitations period, which is generally four years from the return's due date.
Wednesday, December 22, 2010
Economists: Reform the tax code
http://money.cnn.com/2010/12/22/news/economy/economist_survey_tax_reform/index.htm
By Chris Isidore, senior writer December 22, 2010: 11:28 AM ET
NEW YORK (CNNMoney.com) -- April 15 could be a lot easier for most American taxpayers if economists get their way.
Nearly half of economists surveyed by CNNMoney.com think overhauling the current system would be the best tax policy going forward. Reform would mean lower tax rates but an end to many of the deductions and special treatment enjoyed by certain taxpayers.
"Significantly lower ... tax rates in exchange for reducing tax [deductions and breaks] makes the most sense in terms of increasing growth," said David Berson, chief economist of the PMI Group.
Nearly a quarter of the economists would pick an even more radical change to the tax system -- imposing a so-called value added tax, or VAT, a form of national sales tax common in many other advanced economies.
See more survey results
The tax debate that has dominated in Congress for the last few months -- whether to extend the Bush-era tax cuts, or let rates rise to pre-2000 levels on some or all taxpayers -- had relatively little support among the economists, with only a handful picking those choices as the most effective long-term tax strategy.
Several of the economists favor implementing both tax reform and a VAT.
"Actually, we need a combination," wrote David Wyss, chief economist with Standard & Poor's. "The fiscal outlook is disastrous, and unless draconian cuts in Medicare and Social Security are made, taxes will have to rise."
The idea of reforming the tax code has been gaining greater support in Washington, with both President Obama and Federal Reserve Chairman Ben Bernanke voicing support for tax reform, and several blue ribbon groups looking at the issue of deficit reduction say tax reform should be part of the solution.
There is less agreement among economists as to exactly what tax reform would entail and which tax breaks should be exempted, if any.
While Wyss and some others think tax reform and a VAT should be used to increase tax collections and reduce the federal deficit, George Mokzran, senior economist with Huntington Funds, said he thinks it's important that tax reform be revenue neutral, meaning it doesn't raise the tax burden on taxpayers overall.
Mokzran would like to see a flat tax on all sources of income with no exemptions.
Other economists believe tax reform should keep at least some form of the mortgage interest deduction in place in order to prevent rattling the still-fragile housing market.
By Chris Isidore, senior writer December 22, 2010: 11:28 AM ET
NEW YORK (CNNMoney.com) -- April 15 could be a lot easier for most American taxpayers if economists get their way.
Nearly half of economists surveyed by CNNMoney.com think overhauling the current system would be the best tax policy going forward. Reform would mean lower tax rates but an end to many of the deductions and special treatment enjoyed by certain taxpayers.
"Significantly lower ... tax rates in exchange for reducing tax [deductions and breaks] makes the most sense in terms of increasing growth," said David Berson, chief economist of the PMI Group.
Nearly a quarter of the economists would pick an even more radical change to the tax system -- imposing a so-called value added tax, or VAT, a form of national sales tax common in many other advanced economies.
See more survey results
The tax debate that has dominated in Congress for the last few months -- whether to extend the Bush-era tax cuts, or let rates rise to pre-2000 levels on some or all taxpayers -- had relatively little support among the economists, with only a handful picking those choices as the most effective long-term tax strategy.
Several of the economists favor implementing both tax reform and a VAT.
"Actually, we need a combination," wrote David Wyss, chief economist with Standard & Poor's. "The fiscal outlook is disastrous, and unless draconian cuts in Medicare and Social Security are made, taxes will have to rise."
The idea of reforming the tax code has been gaining greater support in Washington, with both President Obama and Federal Reserve Chairman Ben Bernanke voicing support for tax reform, and several blue ribbon groups looking at the issue of deficit reduction say tax reform should be part of the solution.
There is less agreement among economists as to exactly what tax reform would entail and which tax breaks should be exempted, if any.
While Wyss and some others think tax reform and a VAT should be used to increase tax collections and reduce the federal deficit, George Mokzran, senior economist with Huntington Funds, said he thinks it's important that tax reform be revenue neutral, meaning it doesn't raise the tax burden on taxpayers overall.
Mokzran would like to see a flat tax on all sources of income with no exemptions.
Other economists believe tax reform should keep at least some form of the mortgage interest deduction in place in order to prevent rattling the still-fragile housing market.
Friday, December 17, 2010
Congress Sends Tax Cut Extension Bill to President
Late on Thursday, after some procedural delays, the House of Representatives agreed to the Senate's version of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, HR 4853, and by a vote of 277 to 148 sent it to President Barack Obama for his signature. The bill is the result of a deal negotiated by the White House and members of Congress, and the president is expected to sign it today.
EGTRRA Tax Cuts Extended for Two Years
Under current law, the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16), other than those made permanent or extended by subsequent legislation, sunset and won't apply to tax or limitation years beginning after 2010. (Sec. 901 of EGTRRA)
The 2010 Tax Relief Act postpones the Sec. 901 EGTRRA sunset rule for two years. That is, under the 2010 Tax Relief Act, the income tax provisions of EGTRRA, other than those made permanent or extended by subsequent legislation, will sunset and will not apply to tax or limitation years beginning after 2012 (instead of 2010). Thus, all of the following favorable tax rules (among others) will remain in place through 2012.
Tax rates. The income tax rates for individuals will stay at 10%, 15%, 25%, 28%, 33% and 35% (instead of moving to 15%, 28%, 31%, 36% and 39.6%). Additionally, the size of the 15% tax bracket for joint filers and qualified surviving spouses will remain at 200% (instead of dropping to 167%) of the 15% tax bracket for individual filers.
According to the Joint Committee on Taxation Explanation of the 2010 Tax Relief Act, the tax rate schedules for 2011, as adjusted for inflation, will be as follows:
FOR MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES, THE 2011 RATE BRACKETS WILL BE:
If taxable income is: -- The tax will be:
Not over $17,000 -- 10% of taxable income
Over $17,000 but not over $69,000 -- $1,700.00 plus 15% of the excess over $17,000
Over $69,000 but not over $139,350 -- $9,500.00 plus 25% of the excess over $69,000
Over $139,350 but not over $212,300 -- $27,087.50 plus 28% of the excess over $139,350
Over $212,300 but not over $379,150 -- $47,513.50 plus 33% of the excess over $212,300
Over $379,150 -- $102,574.00 plus 35% of the excess over $379,150
FOR SINGLE INDIVIDUALS (OTHER THAN HEADS OF HOUSEHOLDS AND SURVIVING SPOUSES), THE 2011 RATE BRACKETS WILL BE:
If taxable income is: -- The tax will be:
Not over $8,500 -- 10% of taxable income
Over $8,500 but not over $34,500 -- $850.00 plus 15% of the excess over $8,500
Over $34,500 but not over $83,600 -- $4,750.00 plus 25% of the excess over $34,500
Over $83,600 but not over $174,400 -- $17,025.00 plus 28% of the excess over $83,600
Over $174,400 but not over $379,150 -- $42,449.00 plus 33% of the excess over $174,400
Over $379,150 -- $110,016.50 plus 35% of the excess over $379,150
FOR HEADS OF HOUSEHOLDS, THE 2011 RATE BRACKETS WILL BE:
If taxable income is: -- The tax will be:
Not over $12,150 -- 10% of taxable income
Over $12,150 but not over $46,250 -- $1,215.00 plus 15% of the excess over $12,150
Over $46,250 but not over $119,400 -- $6,330.00 plus 25% of the excess over $46,250
Over $119,400 but not over $193,350 -- $24,617.50 plus 28% of the excess over $119,400
Over $193,350 but not over $379,150 -- $45,323.50 plus 33% of the excess over $193,350
Over $379,150 -- $106,637.50 plus 35% of the excess over $379,150
FOR MARRIEDS FILING SEPARATE RETURNS, THE 2011 RATE BRACKETS WILL BE:
If taxable income is: -- The tax will be:
Not over $8,500 -- 10% of taxable income
Over $8,500 but not over $34,500 -- $850.50 plus 15% of the excess over $8,500
Over $34,500 but not over $69,675 -- $4,750.00 plus 25% of the excess over $34,500
Over $69,675 but not over $106,150 -- $13,543.75 plus 28% of the excess over $69,675
Over $106,150 but not over $189,575 -- $23,756.75 plus 33% of the excess over $106,150
Over $189,575 -- $51,287.00 plus 35% of the excess over $189,575
Standard deduction for marrieds. EGTRRA increased the basic standard deduction for a married couple filing a joint return to twice the basic standard deduction for an unmarried individual filing a single return.
If the EGTRRA sunset kicked in, the standard deduction for married taxpayers filing jointly (and qualified surviving spouses) would drop to 167% of the standard deduction for single taxpayers, and the standard deduction for married taxpayers filing separately would continue to be one-half of the standard deduction for joint filers.
Under the Senate passed 2010 Tax Reform Act, the standard deduction for married taxpayers filing jointly (and qualified surviving spouses) remains at 200% (rather than 167%) of the standard deduction for single taxpayers for 2011. (The standard deduction for marrieds filing separately is half of the joint filer amount.)
The standard deduction will be $11,600 (up from $11,400 for 2010); for marrieds filing separately, it will be $5,800 (up from $5,700 for 2010).
Pease and PEP limitations won't apply. For 2011 and 2012:
The Senate passed 2010 Tax Reform Act defers for two years the sunset rule of Sec. 303 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA, PL 108-27). Thus, through Dec. 31, 2012, long-term capital gain (with the exception of 28% rate gain and unrecaptured section 1250 gain) will continue to be taxed at a maximum rate of 15%. If the JGTRRA sunset rule went into effect, long-term capital gain would face a tax of 20% (18% for assets held more than five years)). And before 2013, qualified dividends paid to individuals will be taxed at the same rates as long-term capital gains (instead of being taxed under the JGTRRA sunset rule at the same rates that apply to ordinary income).
Alternative Minimum Tax (AMT) "Patched" for Two Years
Under the Senate passed 2010 Tax Reform Act, the AMT exemption amounts for 2010 will be as follows:
Also for 2010 and 2011, many nonrefundable personal credits will be allowed against the AMT (without the "patch," they couldn't offset AMT).
Estate Tax Relief
EGTRRA phased out the estate and generation-skipping transfer taxes so that they were fully repealed in 2010, lowered the gift tax rate to 35% and increased the gift tax exemption to $1 million for 2010. Under the EGTRRA sunset rule, the estate tax was set to return in 2011, with the top estate and gift tax rate reverting to 55%. For 2010, under EGTRRRA, the basis rules for inherited property were to be similar to the gift tax rules but with many opportunities for heirs to get increases in basis. Under the EGTRRA sunset rule, the pre-EGTRRA step-up in basis rules were to return for 2011.
The Senate passed 2010 Tax Relief Act:
The Senate passed 2010 Tax Relief Act OKs the following major new incentives for businesses to invest in machinery and equipment:
Under current law, employees pay a 6.2% Social Security tax on all wages earned up to $106,800 (in 2011) and self-employed individuals pay 12.4% Social Security self-employment taxes on all their self-employment income up to the same threshold. For 2011, the Senate passed 2010 Tax Reform Act gives a two-percentage-point payroll/self-employment tax holiday for employees and self-employeds. As a result, employees will pay only 4.2% Social Security tax on wages and self-employment individuals will pay only 10.4% Social Security self-employment taxes on self-employment income up to the threshold.
The maximum savings for 2011 will be $2,136 (2% of $106,800).
Host of Expired Business Tax Breaks Retroactively Reinstated and Extended Through 2011
The following business tax breaks that expired at the end of 2009 will be retroactively reinstated and extended through 2011:
Other Business Tax Breaks Extended Through 2011
The following business tax breaks are extended through 2011:
Long List of Tax Breaks for Individuals Retroactively Reinstated and Extended Through 2011
All of the following tax breaks for individuals that expired at the end of 2009 will be retroactively reinstated and extended through 2011:
The following tax breaks for individuals that were set to expire at the end of 2010 will be extended through 2011:
The list of energy-related provisions that will be extended through 2011 are:
The following disaster relief provisions will also be extended through 2011:
The House of Representatives on Thursday by a vote of 277–148 passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, HR 4853, which would postpone the sunset of the 2001 and 2003 tax cuts, reduce the estate tax, extend a large number of expired provisions, and extend unemployment benefits. The bill now goes to President Barack Obama for his signature, which is expected soon.
The House passed the Senate’s version of the bill without amendment. Prior to the vote on the bill, the House rejected, by a vote of 194–233, a motion that would have stricken the estate tax provisions in the bill and replaced them with an estate tax provision providing for a 45% rate and a $3.5 million exemption.
The bill has provisions covering the estate tax, expiring tax cuts, expired tax provisions and an alternative minimum tax (AMT) patch.
The bill postpones the scheduled sunset of the lower tax rates introduced in 2001 by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA, PL 107-16); those rates will now continue through 2012. The bill also continues the lower capital gains tax rate introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (PL 108-27) through 2012.
The EGTRRA’s repeal of the itemized deduction phaseout and the personal exemption phaseout are extended by the bill for two years.
For 2011 only, the bill reduces the rate for the Social Security portion of payroll taxes to 10.4%, by reducing the employee rate from 6.2% to 4.2% (the employer’s portion remains at 6.2%).
The bill includes an AMT patch for 2010 and 2011. For 2010, the AMT exemption amounts will be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. For 2011, the amounts will be $48,450 and $74,450, respectively.
The bill extends the 100% bonus depreciation for business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property). The bill also sets the expensing limitation under IRC § 179 at $125,000 and the phaseout threshold amount at $500,000 for 2012. The bill then reduces these amounts to $25,000 and $200,000 for tax years beginning after 2012.
The bill temporarily reinstates the estate tax, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011).
The bill also extends a large number of expired or expiring provisions, including:
EGTRRA Tax Cuts Extended for Two Years
Under current law, the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16), other than those made permanent or extended by subsequent legislation, sunset and won't apply to tax or limitation years beginning after 2010. (Sec. 901 of EGTRRA)
The 2010 Tax Relief Act postpones the Sec. 901 EGTRRA sunset rule for two years. That is, under the 2010 Tax Relief Act, the income tax provisions of EGTRRA, other than those made permanent or extended by subsequent legislation, will sunset and will not apply to tax or limitation years beginning after 2012 (instead of 2010). Thus, all of the following favorable tax rules (among others) will remain in place through 2012.
Tax rates. The income tax rates for individuals will stay at 10%, 15%, 25%, 28%, 33% and 35% (instead of moving to 15%, 28%, 31%, 36% and 39.6%). Additionally, the size of the 15% tax bracket for joint filers and qualified surviving spouses will remain at 200% (instead of dropping to 167%) of the 15% tax bracket for individual filers.
According to the Joint Committee on Taxation Explanation of the 2010 Tax Relief Act, the tax rate schedules for 2011, as adjusted for inflation, will be as follows:
FOR MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES, THE 2011 RATE BRACKETS WILL BE:
If taxable income is: -- The tax will be:
Not over $17,000 -- 10% of taxable income
Over $17,000 but not over $69,000 -- $1,700.00 plus 15% of the excess over $17,000
Over $69,000 but not over $139,350 -- $9,500.00 plus 25% of the excess over $69,000
Over $139,350 but not over $212,300 -- $27,087.50 plus 28% of the excess over $139,350
Over $212,300 but not over $379,150 -- $47,513.50 plus 33% of the excess over $212,300
Over $379,150 -- $102,574.00 plus 35% of the excess over $379,150
FOR SINGLE INDIVIDUALS (OTHER THAN HEADS OF HOUSEHOLDS AND SURVIVING SPOUSES), THE 2011 RATE BRACKETS WILL BE:
If taxable income is: -- The tax will be:
Not over $8,500 -- 10% of taxable income
Over $8,500 but not over $34,500 -- $850.00 plus 15% of the excess over $8,500
Over $34,500 but not over $83,600 -- $4,750.00 plus 25% of the excess over $34,500
Over $83,600 but not over $174,400 -- $17,025.00 plus 28% of the excess over $83,600
Over $174,400 but not over $379,150 -- $42,449.00 plus 33% of the excess over $174,400
Over $379,150 -- $110,016.50 plus 35% of the excess over $379,150
FOR HEADS OF HOUSEHOLDS, THE 2011 RATE BRACKETS WILL BE:
If taxable income is: -- The tax will be:
Not over $12,150 -- 10% of taxable income
Over $12,150 but not over $46,250 -- $1,215.00 plus 15% of the excess over $12,150
Over $46,250 but not over $119,400 -- $6,330.00 plus 25% of the excess over $46,250
Over $119,400 but not over $193,350 -- $24,617.50 plus 28% of the excess over $119,400
Over $193,350 but not over $379,150 -- $45,323.50 plus 33% of the excess over $193,350
Over $379,150 -- $106,637.50 plus 35% of the excess over $379,150
FOR MARRIEDS FILING SEPARATE RETURNS, THE 2011 RATE BRACKETS WILL BE:
If taxable income is: -- The tax will be:
Not over $8,500 -- 10% of taxable income
Over $8,500 but not over $34,500 -- $850.50 plus 15% of the excess over $8,500
Over $34,500 but not over $69,675 -- $4,750.00 plus 25% of the excess over $34,500
Over $69,675 but not over $106,150 -- $13,543.75 plus 28% of the excess over $69,675
Over $106,150 but not over $189,575 -- $23,756.75 plus 33% of the excess over $106,150
Over $189,575 -- $51,287.00 plus 35% of the excess over $189,575
Standard deduction for marrieds. EGTRRA increased the basic standard deduction for a married couple filing a joint return to twice the basic standard deduction for an unmarried individual filing a single return.
If the EGTRRA sunset kicked in, the standard deduction for married taxpayers filing jointly (and qualified surviving spouses) would drop to 167% of the standard deduction for single taxpayers, and the standard deduction for married taxpayers filing separately would continue to be one-half of the standard deduction for joint filers.
Under the Senate passed 2010 Tax Reform Act, the standard deduction for married taxpayers filing jointly (and qualified surviving spouses) remains at 200% (rather than 167%) of the standard deduction for single taxpayers for 2011. (The standard deduction for marrieds filing separately is half of the joint filer amount.)
The standard deduction will be $11,600 (up from $11,400 for 2010); for marrieds filing separately, it will be $5,800 (up from $5,700 for 2010).
Pease and PEP limitations won't apply. For 2011 and 2012:
- Itemized deductions of higher-income taxpayers will not be reduced (under the EGTRRA sunset rule for the "Pease limitation," after 2010 they would have been reduced by 3% of AGI above an inflation-adjusted figure, but the reduction couldn't exceed 80%).
- A higher-income taxpayer's personal exemptions will not be phased out when AGI exceeds an inflation-adjusted threshold (under the EGTRRA sunset rule for the "Pease limitation," after 2010 they would have been phased out).
- 2011 the personal exemption amount will be $3,700 (up from $3,650 for 2010).
- Coverdell Education Saving Accounts (CESAs), formerly called education IRAs;
- exclusion for employer-provided educational assistance under Code Sec. 127 ;
- exemption from the payments-for-services rule for amounts received under certain Government health professions scholarship programs;
- above-the-line student loan interest deduction; credit for employer-provided child care facilities;
- adoption credit and adoption assistance programs exclusion, arbitrage rebate for school construction bonds, tax-exempt private activity bonds for qualified education facilities, American opportunity tax credit, extended earned income tax credit (EITC);
- tax relief for Alaska native settlement funds; credit for household and dependent care; and
- child tax credit.
The Senate passed 2010 Tax Reform Act defers for two years the sunset rule of Sec. 303 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA, PL 108-27). Thus, through Dec. 31, 2012, long-term capital gain (with the exception of 28% rate gain and unrecaptured section 1250 gain) will continue to be taxed at a maximum rate of 15%. If the JGTRRA sunset rule went into effect, long-term capital gain would face a tax of 20% (18% for assets held more than five years)). And before 2013, qualified dividends paid to individuals will be taxed at the same rates as long-term capital gains (instead of being taxed under the JGTRRA sunset rule at the same rates that apply to ordinary income).
Alternative Minimum Tax (AMT) "Patched" for Two Years
Under the Senate passed 2010 Tax Reform Act, the AMT exemption amounts for 2010 will be as follows:
- Married individuals filing jointly and surviving spouses: $72,450, less 25% of AMTI exceeding $150,000 (zero exemption when AMTI is $439,800);
- Unmarried individuals: $47,450, less 25% of AMTI exceeding $112,500 (zero exemption when AMTI is $302,300) (different amount applies for a child subject to the kiddie tax); and
- Married individuals filing separately: $36,225, less 25% of AMTI exceeding $75,000 (zero exemption when AMTI is $219,900). But AMTI is increased by the lesser of $36,225 or 25% of the excess of AMTI (without the exemption reduction) over $219,900.
- Married individuals filing jointly and surviving spouses: $74,450, less 25% of AMTI exceeding $150,000 (zero exemption when AMTI is $447,800);
- Unmarried individuals: $48,450, less 25% of AMTI exceeding $112,500 (zero exemption when AMTI is $306,300) (different amount applies for a child subject to the kiddie tax); and
- Married individuals filing separately: $37,225, less 25% of AMTI exceeding $75,000 (zero exemption when AMTI is $223,900). But AMTI is increased by the lesser of $37,225 or 25% of the excess of AMTI (without the exemption reduction) over $223,900.
Also for 2010 and 2011, many nonrefundable personal credits will be allowed against the AMT (without the "patch," they couldn't offset AMT).
Estate Tax Relief
EGTRRA phased out the estate and generation-skipping transfer taxes so that they were fully repealed in 2010, lowered the gift tax rate to 35% and increased the gift tax exemption to $1 million for 2010. Under the EGTRRA sunset rule, the estate tax was set to return in 2011, with the top estate and gift tax rate reverting to 55%. For 2010, under EGTRRRA, the basis rules for inherited property were to be similar to the gift tax rules but with many opportunities for heirs to get increases in basis. Under the EGTRRA sunset rule, the pre-EGTRRA step-up in basis rules were to return for 2011.
The Senate passed 2010 Tax Relief Act:
- Lowers estate and GST taxes for 2011 and 2012 by increasing the exemption amount (technically, the applicable exclusion amount) from $1 million to $5 million (as indexed and rounded to the nearest multiple of $10,000 after 2011) and reducing the top rate from 55% to 35%.
- Allows estates of decedents dying in 2010 to choose between (1) estate tax (based on a $5 million exemption and 35% top rate) and a step-up in basis or (2) no estate tax and modified carryover basis. In technical terms, the Act achieves this choice by making the estate tax and basis changes effective retroactively for estates of decedents dying after 2009 but allowing the opt-out choice for estates of decedents dying in 2010.
- For gifts made after Dec. 31, 2010, reunifies the gift tax with the estate tax, with an applicable exclusion amount of $5 million and a top estate and gift tax rate of 35%.
- Provides that the GST tax exemption for decedents dying or gifts made after Dec. 31, 2009, is equal to the applicable exclusion amount for estate tax purposes (e.g., $5 million for 2010). Therefore, up to $5 million in GST tax exemption may be allocated to a trust created or funded during 2010. Although the GST tax is applicable in 2010, the GST tax rate for transfers made during 2010 is 0%. The GST tax rate for transfers made in 2011 and 2012 will be 35%.
- For a decedent dying after Dec. 31, 2009, and before the enactment date, provides that the due date for filing an estate tax return, making any payment of estate tax, and disclaiming an interest in property passing by reason of death is not to be earlier than the date that's nine months after the enactment date.
- Effective for estates of decedents dying after Dec. 31, 2010, allows the executor of a deceased spouse's estate to transfer any unused exemption to the surviving spouse.
The Senate passed 2010 Tax Relief Act OKs the following major new incentives for businesses to invest in machinery and equipment:
- A 100% writeoff in the placed-in-service year of the cost of property eligible for bonus depreciation under Code Sec. 168(k) . This will apply for property acquired and placed in service after Sept. 8, 2010, and before Jan. 1, 2012;
- A 50% bonus first-year depreciation allowance under Code Sec. 168(k) for property placed in service after Dec. 31, 2011, and before Jan. 1, 2013;
- Extension through Dec. 31, 2012, of the election to accelerate the AMT credit instead of claiming additional first-year depreciation; and
- For tax years beginning after Dec. 31, 2011, setting the maximum expensing amount under Code Sec. 179 at $125,000 and the investment-based phaseout amount at $500,000 (under current law, the expensing figures drop from $500,000/$2 million for 2010 and 2011 to$25,000/$200,000 after 2011). Also, off-the-shelf computer software will qualify for the Code Sec. 179 expensing election if placed in service in a tax year beginning before 2013.
Under current law, employees pay a 6.2% Social Security tax on all wages earned up to $106,800 (in 2011) and self-employed individuals pay 12.4% Social Security self-employment taxes on all their self-employment income up to the same threshold. For 2011, the Senate passed 2010 Tax Reform Act gives a two-percentage-point payroll/self-employment tax holiday for employees and self-employeds. As a result, employees will pay only 4.2% Social Security tax on wages and self-employment individuals will pay only 10.4% Social Security self-employment taxes on self-employment income up to the threshold.
The maximum savings for 2011 will be $2,136 (2% of $106,800).
Host of Expired Business Tax Breaks Retroactively Reinstated and Extended Through 2011
The following business tax breaks that expired at the end of 2009 will be retroactively reinstated and extended through 2011:
- research credit;
- Indian employment tax credit;
- new markets tax credit;
- railroad track maintenance credit;
- mine rescue team training credit;
- employer wage credit for activated reservists;
- 15-year writeoff for qualifying leasehold improvements, restaurant buildings and improvements, and retail improvements;
- 7-year writeoff for motorsports entertainment facilities;
- accelerated depreciation for business property on an Indian reservation; enhanced charitable deductions for contributions of food inventory, for contributions of book inventories to public schools and for corporate contributions of computer equipment for educational purposes;
- election to expense mine safety equipment;
- special expensing rules for certain film and television products;
- expensing of environmental remediation costs;
- allowance of the Code Sec. 199 domestic production activities deduction for activities in Puerto Rico;
- modification of tax treatment of certain payments to controlling exempt organizations;
- treatment of certain dividends of regulated investment companies (RICs);
- RIC qualified investment entity treatment under FIRPTA;
- exceptions for active financing income;
- look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules;
- basis adjustment to stock of S corporations making charitable contributions of property;
- empowerment zone tax incentives;
- tax incentives for investment in the District of Columbia;
- temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands; and
- American Samoa economic development credit.
Other Business Tax Breaks Extended Through 2011
The following business tax breaks are extended through 2011:
- the work opportunity tax credit; and
- qualified zone academy bonds.
Long List of Tax Breaks for Individuals Retroactively Reinstated and Extended Through 2011
All of the following tax breaks for individuals that expired at the end of 2009 will be retroactively reinstated and extended through 2011:
- the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers;
- the election to take an itemized deduction for State and local general sales taxes in lieu of the itemized deduction permitted for State and local income taxes;
- increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes;
- the above-the-line deduction for qualified tuition and related expenses;
- the provision that permits taxpayers age 70 1/2 or older to make tax-free distributions to charity from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer, per tax year (additionally, individuals will be allowed to treat IRA transfers to charities during January of 2011 and as if made during 2010);
- look-thru of certain RIC stock in determining gross estate of nonresidents; and
- disregard of refunds in the administration of federal or federally assisted benefit programs.
The following tax breaks for individuals that were set to expire at the end of 2010 will be extended through 2011:
- the increase in the monthly exclusion for employer-provided transit and vanpool benefits equal to that of the exclusion for employer-provided parking benefits (i.e., $230 per month);
- treatment of mortgage insurance premiums as deductible qualified residence interest; and
- exclusion of 100% of gain on certain small business stock.
The list of energy-related provisions that will be extended through 2011 are:
- the $1.00 per gallon production tax credit for biodiesel, as well as the small agri-biodiesel producer credit of 10 cents per gallon;
- the $1.00 per gallon production tax credit for diesel fuel created from biomass;
- the placed-in-service deadline for qualifying refined coal facilities;
- the credit for manufacturers of energy-efficient residential homes;
- the $0.50 per gallon alternative fuel tax credit (but the credit will not be extended for any liquid fuel derived from a pulp or paper manufacturing process);
- deferral of gain on qualified electric utilities' sales or dispositions of electric transmission property;
- the suspension on the taxable income limit for purposes of depleting a marginal oil or gas well;
- grants for specified energy property in lieu of tax credits;
- the income tax credit for alcohol used as fuel;
- the reduced credit for ethanol blenders;
- the excise tax credit for alcohol used as fuel;
- the payment for alcohol fuel mixture;
- additional duties on imported ethanol;
- the energy efficient appliance credits (in new amounts and with new requirements);
- the Code Sec. 25C credit for energy-efficient improvements to existing homes, but reinstating the credit as it existed before passage of the American Recovery and Reinvestment Act (standards for property eligible under Code Sec. 25C are updated to reflect improvements in
- energy efficiency));
- the 30% investment tax credit for alternative vehicle refueling property.
The following disaster relief provisions will also be extended through 2011:
- the time for issuing New York Liberty Zone bonds, effective for bonds issued after Dec. 31, 2009;
- the increased rehabilitation credit for qualified expenditures in the Gulf Opportunity Zone (GO Zone);
- the placed-in-service deadline to claim additional low-income housing credits for buildings in GO Zones;
- tax-exempt bond financing; and
- the additional depreciation deduction claimed by businesses equal to 50% of the cost of new property investments made in the GO Zone (expenditures in 2011 will be eligible if the property is placed in service by Dec. 31, 2011).
The House of Representatives on Thursday by a vote of 277–148 passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, HR 4853, which would postpone the sunset of the 2001 and 2003 tax cuts, reduce the estate tax, extend a large number of expired provisions, and extend unemployment benefits. The bill now goes to President Barack Obama for his signature, which is expected soon.
The House passed the Senate’s version of the bill without amendment. Prior to the vote on the bill, the House rejected, by a vote of 194–233, a motion that would have stricken the estate tax provisions in the bill and replaced them with an estate tax provision providing for a 45% rate and a $3.5 million exemption.
The bill has provisions covering the estate tax, expiring tax cuts, expired tax provisions and an alternative minimum tax (AMT) patch.
The bill postpones the scheduled sunset of the lower tax rates introduced in 2001 by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA, PL 107-16); those rates will now continue through 2012. The bill also continues the lower capital gains tax rate introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (PL 108-27) through 2012.
The EGTRRA’s repeal of the itemized deduction phaseout and the personal exemption phaseout are extended by the bill for two years.
For 2011 only, the bill reduces the rate for the Social Security portion of payroll taxes to 10.4%, by reducing the employee rate from 6.2% to 4.2% (the employer’s portion remains at 6.2%).
The bill includes an AMT patch for 2010 and 2011. For 2010, the AMT exemption amounts will be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. For 2011, the amounts will be $48,450 and $74,450, respectively.
The bill extends the 100% bonus depreciation for business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property). The bill also sets the expensing limitation under IRC § 179 at $125,000 and the phaseout threshold amount at $500,000 for 2012. The bill then reduces these amounts to $25,000 and $200,000 for tax years beginning after 2012.
The bill temporarily reinstates the estate tax, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011).
The bill also extends a large number of expired or expiring provisions, including:
- The increased standard deduction for married taxpayers filing jointly, scheduled to expire after 2010, would continue for two years;
- The $1,000 child tax credit amount would continue for two years, instead of reverting to $500;
- The increased starting and ending points for the earned income credit would continue for two years;
- The $3,000 amount for the child and dependent care credit, which is scheduled to revert to $2,400 after 2010, would continue for two years;
- The American opportunity tax credit would continue for two years;
- The temporary 100% exclusion of gain from the sale of certain small business stock under IRC § 1202, enacted by the Small Business Jobs Act of 2010, would be extended through 2011.
Wednesday, December 15, 2010
Senate passed Obama-GOP tax deal
http://news.yahoo.com/s/ap/20101215/ap_on_bi_ge/us_tax_cuts
WASHINGTON – In a reach across party lines, the Senate overwhelmingly passed sweeping legislation Wednesday to prevent a Jan. 1 income tax increase for millions and to renew jobless benefits for the long-term unemployed.
A House vote is expected by Thursday.
Within moments of the 81-19 Senate vote, President Barack Obama urged the House to follow suit without making any changes — a slap at rebellious liberals working to stiffen the terms of an estate tax provision they characterize as a giveaway to millionaires and billionaires.
"I know there are different aspects of this plan to which members of Congress, on both sides of the aisle, object," Obama said. "That's the nature of compromise. But we worked hard to negotiate an agreement that's a win for middle-class families and a win for our economy. And we can't afford to let it fall victim to either delay or defeat."
At its core, the legislation provides a two-year extension of the tax cuts at all income levels that Congress approved while George W. Bush was president. Without action, they will expire on Dec. 31.
The bill also would cut 2011 Social Security taxes for all wage earners, a reduction that will mean an extra $1,000 in take home pay for an individual earning $50,000.
In addition, the legislation renews a program of jobless benefits for millions who were laid off more than six months ago. Officials said that without the bill, government checks will be cut off for two million Americans over the holidays, and millions more over the next year.
Energy tax provisions, including extension of a government subsidy for ethanol and breaks for producers of other alternatives to oil, were added in recent days to strengthen lawmakers' support for the measure.
The legislation amounted to the first fruits of a new era of divided government, a deal sealed little more than a week ago by Obama, who is nursing a fragile economic recovery midway through his term, and Republicans whose position was greatly strengthened in last month's elections.
Concessions made by the president sparked criticism from liberals who were angered at tax cuts for the wealthy that he had long criticized. Some provisions agreed to by Republican leaders brought objections from conservatives unhappy that the cost of the jobless benefits would swell the federal budget deficit.
And in the hours before final passage, lawmakers on both sides maneuvered for political gain, a sign of renewed struggle in 2011.
A Democratic attempt to ease the paperwork burden imposed by this year's big health care bill was blocked by Republicans. Democrats countered by vetoing a GOP alternative that would have included offsetting spending cuts.
In the end, though, the tax bill drew support from 44 Democrats and 37 Republicans, testament to the appeal of lower taxes and renewal of a program of aid for victims of the recession at a time of 9.8 percent unemployment. Fourteen Democrats and five Republicans voted against the bill.
Obama's call for the House to accept the Senate-passed measure continued a postelection season of contentiousness between the president and Democrats distressed that they lost their majority in November.
Democratic House leaders said they intended to have the bill debated and voted on by Thursday, but declined to say what their approach would be to the estate tax.
Their dilemma was evident — trying to keep faith with members of the rank and file who want to change the legislation, yet avoid at all costs having Democrats saddled with blame if taxes increase on Jan. 1.
That's what the Senate Republican leader, Sen. Mitch McConnell of Kentucky, warned might happen if the bill was changed.
"This agreement is not subject to being reopened," he said on Tuesday. "In other words, we have an understanding."
However, McConnell's insistence didn't extend to a series of Republican attempts to make modifications in the moments before Senate passage.
He and other Republicans sided with a failed attempt by Sen. Jim DeMint, R-S.C. to make the tax cuts permanent, and again when Sen. Tom Coburn, R-Okla., unsuccessfully proposed spending cuts to cover the cost of the unemployment benefits.
In the House, Obama's liberal critics were outspoken.
A closed-door meeting of the rank and file ended inconclusively Tuesday night, and afterward Rep. David Wu, accused the president of showing weakness in the face of an emboldened Republican Party.
"He has no street cred," the Oregon Democrat told reporters. "This tax bill is a thin part of the problem. They're going to get eaten alive by the Republicans in this chamber," he added, referring to White House officials.
By far the most controversial element of the bill concerned the estate tax. Under the measure, individual estates as large as $5 million would pass to heirs tax free — an amount that would reach $10 million for couples — with the balance taxed at a rate of 35 percent.
Under the Bush-era tax cuts, the estate tax was repealed for 2010, but scheduled to return on Jan. 1 with a top rate of 55 percent on the portion of estates above $1 million — $2 million for couples.
Unhappy with the more generous approach that Obama agreed to, House Democrats voted in a closed-door meeting last week they would not permit the legislation to reach the floor without changes.
They have since retreated from their ultimatum, and now hope they can change the measure on the floor to restore the tax to levels in effect in 2009. At the time, individuals could pass $3.5 million to their heirs, tax-free. Couples could pass $7 million, with a little tax planning, and the balance was taxed at a top rate of 45 percent.
For more coverage, click http://www.nytimes.com/2010/12/16/us/politics/16cong.html
WASHINGTON – In a reach across party lines, the Senate overwhelmingly passed sweeping legislation Wednesday to prevent a Jan. 1 income tax increase for millions and to renew jobless benefits for the long-term unemployed.
A House vote is expected by Thursday.
Within moments of the 81-19 Senate vote, President Barack Obama urged the House to follow suit without making any changes — a slap at rebellious liberals working to stiffen the terms of an estate tax provision they characterize as a giveaway to millionaires and billionaires.
"I know there are different aspects of this plan to which members of Congress, on both sides of the aisle, object," Obama said. "That's the nature of compromise. But we worked hard to negotiate an agreement that's a win for middle-class families and a win for our economy. And we can't afford to let it fall victim to either delay or defeat."
At its core, the legislation provides a two-year extension of the tax cuts at all income levels that Congress approved while George W. Bush was president. Without action, they will expire on Dec. 31.
The bill also would cut 2011 Social Security taxes for all wage earners, a reduction that will mean an extra $1,000 in take home pay for an individual earning $50,000.
In addition, the legislation renews a program of jobless benefits for millions who were laid off more than six months ago. Officials said that without the bill, government checks will be cut off for two million Americans over the holidays, and millions more over the next year.
Energy tax provisions, including extension of a government subsidy for ethanol and breaks for producers of other alternatives to oil, were added in recent days to strengthen lawmakers' support for the measure.
The legislation amounted to the first fruits of a new era of divided government, a deal sealed little more than a week ago by Obama, who is nursing a fragile economic recovery midway through his term, and Republicans whose position was greatly strengthened in last month's elections.
Concessions made by the president sparked criticism from liberals who were angered at tax cuts for the wealthy that he had long criticized. Some provisions agreed to by Republican leaders brought objections from conservatives unhappy that the cost of the jobless benefits would swell the federal budget deficit.
And in the hours before final passage, lawmakers on both sides maneuvered for political gain, a sign of renewed struggle in 2011.
A Democratic attempt to ease the paperwork burden imposed by this year's big health care bill was blocked by Republicans. Democrats countered by vetoing a GOP alternative that would have included offsetting spending cuts.
In the end, though, the tax bill drew support from 44 Democrats and 37 Republicans, testament to the appeal of lower taxes and renewal of a program of aid for victims of the recession at a time of 9.8 percent unemployment. Fourteen Democrats and five Republicans voted against the bill.
Obama's call for the House to accept the Senate-passed measure continued a postelection season of contentiousness between the president and Democrats distressed that they lost their majority in November.
Democratic House leaders said they intended to have the bill debated and voted on by Thursday, but declined to say what their approach would be to the estate tax.
Their dilemma was evident — trying to keep faith with members of the rank and file who want to change the legislation, yet avoid at all costs having Democrats saddled with blame if taxes increase on Jan. 1.
That's what the Senate Republican leader, Sen. Mitch McConnell of Kentucky, warned might happen if the bill was changed.
"This agreement is not subject to being reopened," he said on Tuesday. "In other words, we have an understanding."
However, McConnell's insistence didn't extend to a series of Republican attempts to make modifications in the moments before Senate passage.
He and other Republicans sided with a failed attempt by Sen. Jim DeMint, R-S.C. to make the tax cuts permanent, and again when Sen. Tom Coburn, R-Okla., unsuccessfully proposed spending cuts to cover the cost of the unemployment benefits.
In the House, Obama's liberal critics were outspoken.
A closed-door meeting of the rank and file ended inconclusively Tuesday night, and afterward Rep. David Wu, accused the president of showing weakness in the face of an emboldened Republican Party.
"He has no street cred," the Oregon Democrat told reporters. "This tax bill is a thin part of the problem. They're going to get eaten alive by the Republicans in this chamber," he added, referring to White House officials.
By far the most controversial element of the bill concerned the estate tax. Under the measure, individual estates as large as $5 million would pass to heirs tax free — an amount that would reach $10 million for couples — with the balance taxed at a rate of 35 percent.
Under the Bush-era tax cuts, the estate tax was repealed for 2010, but scheduled to return on Jan. 1 with a top rate of 55 percent on the portion of estates above $1 million — $2 million for couples.
Unhappy with the more generous approach that Obama agreed to, House Democrats voted in a closed-door meeting last week they would not permit the legislation to reach the floor without changes.
They have since retreated from their ultimatum, and now hope they can change the measure on the floor to restore the tax to levels in effect in 2009. At the time, individuals could pass $3.5 million to their heirs, tax-free. Couples could pass $7 million, with a little tax planning, and the balance was taxed at a top rate of 45 percent.
For more coverage, click http://www.nytimes.com/2010/12/16/us/politics/16cong.html
Monday, December 13, 2010
Obama-GOP tax bill clears Senate hurdle with ease
http://thecaucus.blogs.nytimes.com/2010/12/13/senate-advances-tax-cut-package/
Shortly after 4:30 p.m., the vote tally was 69 to 10, with eight Democrats, one Republican, Senator John Ensign of Nevada, and one independent, Senator Bernard Sanders, of Vermont, in opposition.
The final tally was 83 to 15. Forty-five Democrats and 37 Republicans supported moving the measure ahead; opposing votes came from nine Democrats, five Republicans and one independent, Bernard Sanders of Vermont.
The tax package is likely to be brought to the floor in the House on Wednesday.
Here is a very good write up on the proposed extension by Ed Zollars, CPA:
http://ascpa.wordpress.com/2010/12/14/tax-relief-unemployment-insurance-reauthorization-and-jobs-creation-act-of-2010-3/
http://news.yahoo.com/s/ap/20101213/ap_on_bi_ge/us_tax_cuts
By DAVID ESPO, AP Special Correspondent David Espo, Ap Special Correspondent – 38 mins ago
WASHINGTON – Far-reaching legislation to avert a Jan. 1 income-tax increase for millions won overwhelming support in a Senate test vote on Monday, backed by an uneasy and unusual alliance between the White House and lawmakers in both parties.
Even before the vote was complete, President Barack Obama said the show of support "proves that both parties can in fact work together to grow our economy and look out for the American people."
Senate passage, expected within a day or two, would set up a final showdown in the House between Obama and liberals in his own party who want the White House to scale back the billions the bill includes in relief ticketed for the rich.
In his remarks, the president gave no indication he was willing to accept further changes to the measure he negotiated with senior Republicans.
"I understand those concerns," he said of the objections from some of his usual allies in Congress. "I share some of them. But that's the nature of compromise, sacrificing something that each of us cares about."
Despite strong criticism from fellow Democrats, Obama has made passage of the bill a key year-end priority, essential for the economy as it struggles to recover from the worst recession in decades.
In the Senate, Majority Leader Harry Reid, D-Nev., and his GOP counterpart, Mitch McConnell of Kentucky, were joint sponsors of the bill, a symbolic gesture of bipartisanship on an issue that produced nothing but gridlock until midterm elections gave Republicans additional leverage in negotiations.
"We're telling the American people to keep money that's rightfully theirs, so they can spend it and invest it as they please," said McConnell.
In a jab at Democrats, he added, "This is an important shift, and the White House should be applauded for agreeing to it."
Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee, said, "This bipartisan compromise is about creating jobs. Extending middle class tax cuts will help create jobs. ... Job creation needs to be our number one priority."
The bill needed 60 votes to clear a procedural hurdle. It achieved that level quickly in a long roll call, although no final tally was expected for hours.
The bill would provide a two-year reprieve in the tax increases scheduled to take effect on Jan. 1 at all income levels, reduce Social Security taxes for every wage earner in 2011 and extend an expiring program of jobless benefits for the long-term unemployed. The estimated cost, $858 billion over two years, would be added to already-huge federal deficits.
The measure represents a reach across party lines after two years of political combat in which Republicans wanted a permanent extension of all the tax cuts enacted when George W. Bush was president, while Democrats insisted rates be permitted to rise on incomes over $200,000 for individuals and $250,000 for couples.
Despite the bipartisanship in the Senate, disgruntled House Democrats have vowed to block a final vote unless the legislation is changed to scale back the tax relief for the nation's wealthiest.
"I think we're going to have a vote on the Senate bill, with possible changes," House Majority Leader Steny Hoyer, D-Md., said. "We may have it with amendments, we'll see what the process is."
The compromise emerged a week ago after private talks involving the White House and top leaders in Congress, including Republicans who emerged from midterm elections with significantly increased strength.
In the days since, Obama has drawn strong criticism from liberals unhappy that he agreed to changes in the estate tax and income tax that will benefit the rich. Firing back, he said failure to compromise would produce gridlock at a time the economy is still frail and unemployment is at a persistently high rate of 9.8 percent.
The administration's outgoing top economic adviser, Lawrence Summers, said in a speech a few hours before the vote that the agreement should increase consumer spending and help the economy "now and for the next several years."
On the other end of the political spectrum, some conservatives have spoken out against the bill, saying that the renewal of jobless benefits should be offset by spending cuts elsewhere in the budget.
In fact, even supporters of the bill were at pains to point out parts they found objectionable.
Baucus singled out the decision to leave tax rates unchanged on upper income earners.
Sen. John McCain, R-Ariz., highlighted a series of energy tax breaks added to the bill late last week, including an extension of the federal subsidy for ethanol.
McConnell cited "the Democrats' insistence that we borrow the money we need to pay for a further extension of unemployment insurance. In my view, if both parties agree that the debt is a serious problem, we shouldn't be writing checks that we don't have the money to cover."
Many House Democrats objected strongly to a change in the estate tax that Republicans won as part of the deal. The first $5 million of a couple's estate could pass to heirs without taxation, and an additional $5 million could be passed along for the spouse. The balance would be subject to a 35 percent tax rate.
The estate tax was repealed for 2010. But under current law, it is scheduled to return next year with a top rate of 55 percent on the portion above $1 million, $2 million for couples.
Shortly after 4:30 p.m., the vote tally was 69 to 10, with eight Democrats, one Republican, Senator John Ensign of Nevada, and one independent, Senator Bernard Sanders, of Vermont, in opposition.
The final tally was 83 to 15. Forty-five Democrats and 37 Republicans supported moving the measure ahead; opposing votes came from nine Democrats, five Republicans and one independent, Bernard Sanders of Vermont.
The tax package is likely to be brought to the floor in the House on Wednesday.
Here is a very good write up on the proposed extension by Ed Zollars, CPA:
http://ascpa.wordpress.com/2010/12/14/tax-relief-unemployment-insurance-reauthorization-and-jobs-creation-act-of-2010-3/
http://news.yahoo.com/s/ap/20101213/ap_on_bi_ge/us_tax_cuts
By DAVID ESPO, AP Special Correspondent David Espo, Ap Special Correspondent – 38 mins ago
WASHINGTON – Far-reaching legislation to avert a Jan. 1 income-tax increase for millions won overwhelming support in a Senate test vote on Monday, backed by an uneasy and unusual alliance between the White House and lawmakers in both parties.
Even before the vote was complete, President Barack Obama said the show of support "proves that both parties can in fact work together to grow our economy and look out for the American people."
Senate passage, expected within a day or two, would set up a final showdown in the House between Obama and liberals in his own party who want the White House to scale back the billions the bill includes in relief ticketed for the rich.
In his remarks, the president gave no indication he was willing to accept further changes to the measure he negotiated with senior Republicans.
"I understand those concerns," he said of the objections from some of his usual allies in Congress. "I share some of them. But that's the nature of compromise, sacrificing something that each of us cares about."
Despite strong criticism from fellow Democrats, Obama has made passage of the bill a key year-end priority, essential for the economy as it struggles to recover from the worst recession in decades.
In the Senate, Majority Leader Harry Reid, D-Nev., and his GOP counterpart, Mitch McConnell of Kentucky, were joint sponsors of the bill, a symbolic gesture of bipartisanship on an issue that produced nothing but gridlock until midterm elections gave Republicans additional leverage in negotiations.
"We're telling the American people to keep money that's rightfully theirs, so they can spend it and invest it as they please," said McConnell.
In a jab at Democrats, he added, "This is an important shift, and the White House should be applauded for agreeing to it."
Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee, said, "This bipartisan compromise is about creating jobs. Extending middle class tax cuts will help create jobs. ... Job creation needs to be our number one priority."
The bill needed 60 votes to clear a procedural hurdle. It achieved that level quickly in a long roll call, although no final tally was expected for hours.
The bill would provide a two-year reprieve in the tax increases scheduled to take effect on Jan. 1 at all income levels, reduce Social Security taxes for every wage earner in 2011 and extend an expiring program of jobless benefits for the long-term unemployed. The estimated cost, $858 billion over two years, would be added to already-huge federal deficits.
The measure represents a reach across party lines after two years of political combat in which Republicans wanted a permanent extension of all the tax cuts enacted when George W. Bush was president, while Democrats insisted rates be permitted to rise on incomes over $200,000 for individuals and $250,000 for couples.
Despite the bipartisanship in the Senate, disgruntled House Democrats have vowed to block a final vote unless the legislation is changed to scale back the tax relief for the nation's wealthiest.
"I think we're going to have a vote on the Senate bill, with possible changes," House Majority Leader Steny Hoyer, D-Md., said. "We may have it with amendments, we'll see what the process is."
The compromise emerged a week ago after private talks involving the White House and top leaders in Congress, including Republicans who emerged from midterm elections with significantly increased strength.
In the days since, Obama has drawn strong criticism from liberals unhappy that he agreed to changes in the estate tax and income tax that will benefit the rich. Firing back, he said failure to compromise would produce gridlock at a time the economy is still frail and unemployment is at a persistently high rate of 9.8 percent.
The administration's outgoing top economic adviser, Lawrence Summers, said in a speech a few hours before the vote that the agreement should increase consumer spending and help the economy "now and for the next several years."
On the other end of the political spectrum, some conservatives have spoken out against the bill, saying that the renewal of jobless benefits should be offset by spending cuts elsewhere in the budget.
In fact, even supporters of the bill were at pains to point out parts they found objectionable.
Baucus singled out the decision to leave tax rates unchanged on upper income earners.
Sen. John McCain, R-Ariz., highlighted a series of energy tax breaks added to the bill late last week, including an extension of the federal subsidy for ethanol.
McConnell cited "the Democrats' insistence that we borrow the money we need to pay for a further extension of unemployment insurance. In my view, if both parties agree that the debt is a serious problem, we shouldn't be writing checks that we don't have the money to cover."
Many House Democrats objected strongly to a change in the estate tax that Republicans won as part of the deal. The first $5 million of a couple's estate could pass to heirs without taxation, and an additional $5 million could be passed along for the spouse. The balance would be subject to a 35 percent tax rate.
The estate tax was repealed for 2010. But under current law, it is scheduled to return next year with a top rate of 55 percent on the portion above $1 million, $2 million for couples.
Provisions in the Senate's Tax Cut Extension Bill
Congress appears poised to approve tax-cut extension
HR 4853 has been introduced in the Senate and could be voted on as early as today. The bill encompasses the tax-cut deal negotiated by members of Congress and the White House last week. Among its many provisions, HR 4853 would continue the estate tax in its 2009 form, maintain tax rates at their current levels and extend a large number of expired or expiring tax preference items. In its extenders provisions, the bill goes well beyond what had been reported when the deal was negotiated, according to this article.
http://www.journalofaccountancy.com/Web/20103647.htm
Senate Majority Leader Harry Reid, D-Nev., introduced legislation late Thursday that would postpone the sunset of the 2001 and 2003 tax cuts, reduce the estate tax, and extend a number of expired provisions, as well as extending unemployment benefits. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Senate Amendment 4755 to HR 4853, incorporates elements of the deal struck by congressional and Obama administration negotiators on Dec. 6, but also incorporates many provisions that were not reported to be part of that deal.
The bill has provisions from four of the five tax areas that were considered to be important for Congress to address during its current “lame duck” session: the estate tax, expiring tax cuts, expired tax provisions, and an alternative minimum tax (AMT) patch. The bill as introduced does not address the expanded Form 1099 reporting requirements.
In 2001, when Congress enacted the Economic Growth and Tax Relief Reconciliation Act (EGTRRA, PL 107-16), it included a sunset provision, under which most EGTRRA changes would expire after 2010. This was designed to keep the costs of the bill small enough to ensure widespread support in Congress. HR 4853 would amend EGTRRA to postpone that sunset until after 2012.
Reid will reportedly seek to file a cloture motion on the bill on Monday. This would clear the way for a vote on the bill in the Senate. The bill’s prospects in the House of Representatives are unclear because on Dec. 9, House Democrats voted to oppose consideration of any tax bill based on the deal struck on Dec. 6.
Extension of EGTRRA Tax Cuts
The EGTRRA introduced a new 10% tax bracket for individuals and reduced the tax brackets above the 15% bracket to 25%, 28%, 33% and 35%. Those changes were scheduled to sunset after 2010, so that in 2011 the 10% rate would disappear (with income in that bracket reverting to the 15% bracket) and the other rates would revert to 28%, 31%, 36% and 39.6%, respectively. With the bill’s postponement of the EGTRRA sunset, those rates would continue through 2012.
The EGTRRA also lowered the capital gains tax rate to 15% (0% for taxpayers in the 10% and 15% tax brackets), which is also scheduled to expire after 2010. The bill’s postponement of the EGTRRA sunset would continue the lowered capital gains tax rate through 2012.
The EGTRRA’s repeal of the itemized deduction phaseout and the personal exemption phaseout also sunset in 2011, but would be extended by the bill for two years.
For 2011 only, the legislation would also reduce the rate for the Social Security portion of payroll taxes to 10.4%, by reducing the employee rate from 6.2% to 4.2% (the employer’s portion remains at 6.2%).
AMT Patch
The AMT exemption amount has been temporarily increased by legislative action several times in recent years. The most recent patch was for 2009; for 2010 the AMT exemption amount has reverted to its statutory amount: $45,000 for married individuals filing jointly, less 25% of alternative minimum taxable income exceeding $150,000; $33,750 for unmarried individuals, less 25% of alternative minimum taxable income exceeding $112,500.
The bill includes an AMT patch for 2010 and 2011. For 2010, the AMT exemption amounts would be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. For 2011, the amounts would be $48,450 and $74,450, respectively.
The bill would also extend through 2011 the ability to use nonrefundable personal credits to offset AMT (under IRC § 26(a)).
Bonus Depreciation and Section 179 Expensing
The bill would allow taxpayers to deduct 100% of the cost of business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property). The bill would also extend the election to accelerate AMT credits in lieu of bonus depreciation through 2012, although property manufactured, constructed or produced during 2010 would not be eligible for the election.
The bill would also set the expensing limitation under IRC § 179 at $125,000 and the phaseout threshold amount at $500,000 for 2012. The bill would then reduce these amounts to $25,000 and $200,000 for tax years beginning after 2012.
Estate Tax
The EGTRRA enacted a slow repeal of the estate and generation-skipping transfer (GST) taxes. Under the EGTRRA provisions, the estate and GST tax rates gradually declined until the estate and GST taxes were eliminated in 2010. Under the EGTRRA sunset provision, the estate tax repeal was to be in effect for 2010 only. After that, the estate and GST regime in place before the passage of the EGTRRA would spring back to life, as if the EGTRRA had never been enacted. This means that starting Jan. 1, 2011, the estate tax exemption would be $1 million (adjusted for inflation), the tax rate would be 55%, and the state death tax credit would be revived.
The EGTRRA also repealed the step-up in basis for assets passing at death. Instead, inherited assets are subject to a modified carryover basis rule in 2010. Under this rule, a recipient’s basis in property acquired from a decedent will be the lesser of the adjusted basis of the property at death or the fair market value (FMV) on the date of death. The carryover basis provision also sunset after Dec. 31, 2010.
HR 4853 would temporarily reinstate the estate tax at its 2009 levels, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011). For estates of decedents dying in 2010, an election will be available either to be subject to the reinstated estate tax or to be subject to the modified carryover basis rule. Estates of decedents dying in 2010 would be given an extension to file an estate tax return until nine months after the date of enactment of HR 4853.
The bill would also reinstate the generation-skipping transfer tax, and the due date for filing a return would be extended to nine months after the date of enactment of HR 4853. However, for generation-skipping transfers made during 2010, the tax rate will be zero.
The bill would also restore the unified credit against gift tax for gifts made after 2010.
Extension of Expired Provisions
A variety of temporary tax provisions, often referred to as “extenders,” expired at the end of 2009; more are scheduled to expire at the end of 2010. These expired provisions include tax credits, deductions and various tax incentives. The bill would extend many of these expired provisions, including:
The following temporary tax credits would also be extended through 2011 by the bill:
The following expired and expiring temporary deductions would also be extended through 2011 by the bill:
Other expired and expiring provisions that would be extended through 2011 by the bill include:
A few expired provisions that were contained in earlier proposed extenders legislation but that do not appear in HR 4853 include:
Under the bill, any refund made to an individual would not be taken into account as income for purposes of determining eligibility for any federal assistance or assistance under a state or local program financed by federal funds (new IRC § 6409).
HR 4853 has been introduced in the Senate and could be voted on as early as today. The bill encompasses the tax-cut deal negotiated by members of Congress and the White House last week. Among its many provisions, HR 4853 would continue the estate tax in its 2009 form, maintain tax rates at their current levels and extend a large number of expired or expiring tax preference items. In its extenders provisions, the bill goes well beyond what had been reported when the deal was negotiated, according to this article.
http://www.journalofaccountancy.com/Web/20103647.htm
Senate Majority Leader Harry Reid, D-Nev., introduced legislation late Thursday that would postpone the sunset of the 2001 and 2003 tax cuts, reduce the estate tax, and extend a number of expired provisions, as well as extending unemployment benefits. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Senate Amendment 4755 to HR 4853, incorporates elements of the deal struck by congressional and Obama administration negotiators on Dec. 6, but also incorporates many provisions that were not reported to be part of that deal.
The bill has provisions from four of the five tax areas that were considered to be important for Congress to address during its current “lame duck” session: the estate tax, expiring tax cuts, expired tax provisions, and an alternative minimum tax (AMT) patch. The bill as introduced does not address the expanded Form 1099 reporting requirements.
In 2001, when Congress enacted the Economic Growth and Tax Relief Reconciliation Act (EGTRRA, PL 107-16), it included a sunset provision, under which most EGTRRA changes would expire after 2010. This was designed to keep the costs of the bill small enough to ensure widespread support in Congress. HR 4853 would amend EGTRRA to postpone that sunset until after 2012.
Reid will reportedly seek to file a cloture motion on the bill on Monday. This would clear the way for a vote on the bill in the Senate. The bill’s prospects in the House of Representatives are unclear because on Dec. 9, House Democrats voted to oppose consideration of any tax bill based on the deal struck on Dec. 6.
Extension of EGTRRA Tax Cuts
The EGTRRA introduced a new 10% tax bracket for individuals and reduced the tax brackets above the 15% bracket to 25%, 28%, 33% and 35%. Those changes were scheduled to sunset after 2010, so that in 2011 the 10% rate would disappear (with income in that bracket reverting to the 15% bracket) and the other rates would revert to 28%, 31%, 36% and 39.6%, respectively. With the bill’s postponement of the EGTRRA sunset, those rates would continue through 2012.
The EGTRRA also lowered the capital gains tax rate to 15% (0% for taxpayers in the 10% and 15% tax brackets), which is also scheduled to expire after 2010. The bill’s postponement of the EGTRRA sunset would continue the lowered capital gains tax rate through 2012.
The EGTRRA’s repeal of the itemized deduction phaseout and the personal exemption phaseout also sunset in 2011, but would be extended by the bill for two years.
For 2011 only, the legislation would also reduce the rate for the Social Security portion of payroll taxes to 10.4%, by reducing the employee rate from 6.2% to 4.2% (the employer’s portion remains at 6.2%).
AMT Patch
The AMT exemption amount has been temporarily increased by legislative action several times in recent years. The most recent patch was for 2009; for 2010 the AMT exemption amount has reverted to its statutory amount: $45,000 for married individuals filing jointly, less 25% of alternative minimum taxable income exceeding $150,000; $33,750 for unmarried individuals, less 25% of alternative minimum taxable income exceeding $112,500.
The bill includes an AMT patch for 2010 and 2011. For 2010, the AMT exemption amounts would be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. For 2011, the amounts would be $48,450 and $74,450, respectively.
The bill would also extend through 2011 the ability to use nonrefundable personal credits to offset AMT (under IRC § 26(a)).
Bonus Depreciation and Section 179 Expensing
The bill would allow taxpayers to deduct 100% of the cost of business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property). The bill would also extend the election to accelerate AMT credits in lieu of bonus depreciation through 2012, although property manufactured, constructed or produced during 2010 would not be eligible for the election.
The bill would also set the expensing limitation under IRC § 179 at $125,000 and the phaseout threshold amount at $500,000 for 2012. The bill would then reduce these amounts to $25,000 and $200,000 for tax years beginning after 2012.
Estate Tax
The EGTRRA enacted a slow repeal of the estate and generation-skipping transfer (GST) taxes. Under the EGTRRA provisions, the estate and GST tax rates gradually declined until the estate and GST taxes were eliminated in 2010. Under the EGTRRA sunset provision, the estate tax repeal was to be in effect for 2010 only. After that, the estate and GST regime in place before the passage of the EGTRRA would spring back to life, as if the EGTRRA had never been enacted. This means that starting Jan. 1, 2011, the estate tax exemption would be $1 million (adjusted for inflation), the tax rate would be 55%, and the state death tax credit would be revived.
The EGTRRA also repealed the step-up in basis for assets passing at death. Instead, inherited assets are subject to a modified carryover basis rule in 2010. Under this rule, a recipient’s basis in property acquired from a decedent will be the lesser of the adjusted basis of the property at death or the fair market value (FMV) on the date of death. The carryover basis provision also sunset after Dec. 31, 2010.
HR 4853 would temporarily reinstate the estate tax at its 2009 levels, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011). For estates of decedents dying in 2010, an election will be available either to be subject to the reinstated estate tax or to be subject to the modified carryover basis rule. Estates of decedents dying in 2010 would be given an extension to file an estate tax return until nine months after the date of enactment of HR 4853.
The bill would also reinstate the generation-skipping transfer tax, and the due date for filing a return would be extended to nine months after the date of enactment of HR 4853. However, for generation-skipping transfers made during 2010, the tax rate will be zero.
The bill would also restore the unified credit against gift tax for gifts made after 2010.
Extension of Expired Provisions
A variety of temporary tax provisions, often referred to as “extenders,” expired at the end of 2009; more are scheduled to expire at the end of 2010. These expired provisions include tax credits, deductions and various tax incentives. The bill would extend many of these expired provisions, including:
Tax Credits
- The increased standard deduction for married taxpayers filing jointly, scheduled to expire after 2010, would continue for two years;
- The $1,000 child tax credit amount would continue for two years, instead of reverting to $500;
- The increased starting and ending points for the earned income credit would continue for two years;
- The $3,000 amount for the child and dependent care credit, which is scheduled to revert to $2,400 after 2010, would continue for two years;
- The American opportunity tax credit would continue for two years;
- The temporary 100% exclusion of gain from the sale of certain small business stock under IRC § 1202, enacted by the Small Business Jobs Act of 2010, would be extended through 2011.
The following temporary tax credits would also be extended through 2011 by the bill:
Deductions
- IRC § 25C credit for nonbusiness energy property (which would also be returned to the limitations and standards applicable before amendment by the American Recovery and Reinvestment Act of 2009, PL 111-5);
- IRC § 30C alternative fuel vehicle refueling property credit;
- IRC § 40 credit for alcohol used as fuel;
- IRC § 40A credit for biodiesel and renewable diesel fuel;
- IRC § 41 research and development credit
- IRC § 45(d)(8) credit for refined coal facilities;
- IRC § 45A Indian employment tax credit;
- IRC § 45D new markets tax credit;
- IRC § 45G credit for certain railroad track expenditures;
- IRC § 45L new energy-efficient home credit;
- IRC § 45M energy-efficient appliance credit;
- IRC § 45N mine rescue team training credit;
- IRC § 45P employer wage credit for active duty members of the uniformed services;
- IRC § 51 work opportunity credit;
- IRC § 54E qualified zone academy bonds (but not the section 1397E credit for holders of qualified zone academy bonds, and the section 6431 refundable credit is repealed);
- IRC § 1400C credit for first-time D.C. homebuyers;
- IRC §§ 6426 and 6427 excise tax credits for alternative fuels; and
- American Samoa economic development credit under the Tax Relief and Health Care Act of 2006.
The following expired and expiring temporary deductions would also be extended through 2011 by the bill:
Other Extended Provisions
- IRC § 62(a)(2)(D) deduction for elementary and secondary school teachers;
- IRC § 163(h)(3)(E) treatment of mortgage insurance premiums as interest;
- IRC § 164 state and local sales tax deduction;
- IRC § 168(e)(3)(E) 15-year straight-line cost recovery for qualified leasehold improvements and for qualified restaurant improvements;
- IRC § 168(i)(15)(D) seven-year cost recovery period for motor sports entertainment complexes;
- IRC § 168(j) accelerated depreciation for property on Indian reservations;
- IRC § 170(b)(1)(E) contributions of capital gain real property made for conservation purposes;
- IRC § 170(e)(3)(C) enhanced deduction for contributions of food inventory;
- IRC § 170(e)(3)(D) enhanced deduction for contributions of book inventory to public schools;
- IRC § 170(e)(6) enhanced deduction for corporate contributions of computer equipment for educational purposes;
- IRC § 179E(g) election to expense advanced mine safety equipment;
- IRC § 181(f) expensing treatment for certain film and television productions;
- IRC § 198(h) expensing of environmental remediation costs;
- IRC § 199(d)(8) deduction for income attributable to domestic production activities in Puerto Rico;
- IRC § 222 deduction for tuition and related expenses; and
- IRC § 1367(a)(2) basis adjustment to stock of S corporations making contributions to charity.
Other expired and expiring provisions that would be extended through 2011 by the bill include:
Provisions Not Extended
- IRC § 132 parity for exclusion from income for employer-provided mass transit passes and parking benefits;
- IRC § 168(n) expensing and special depreciation allowance for qualified disaster assistance property (extended through 2012);
- IRC § 408(d)(8) allowance for tax-free distributions from individual retirement plans for charitable purposes;
- IRC § 451 special rule for sales or dispositions to implement FERC or state electric restructuring policy for qualified electric utilities;
- IRC § 512(b)(13) special rules for certain amounts received by tax-exempt organizations from controlled entities;
- IRC § 613A(c) suspension of limitation on percentage depletion for oil and gas from marginal wells;
- IRC § 871(k) treatment of regulated investment company dividends and assets;
- IRC § 897(h) qualified investment entity treatment of regulated investment companies under the Foreign Investment in Real Property Tax Act of 1980;
- IRC §§ 953(e) and 954(h) exceptions for active financing income;
- IRC § 954(c) look-through treatment of payments between related controlled foreign corporations;
- IRC § 2105(d) look-through of certain regulated investment company stock in determining gross estate of nonresidents;
- IRC § 1367(a) basis adjustment to stock of S corporations making charitable contributions of property;
- IRC § 1391 empowerment zone incentives;
- IRC §§ 1400, 1400A and 1400B District of Columbia Enterprise Zone incentives;
- IRC § 1400L(b) New York Liberty Zone bonus depreciation;
- IRC § 1400N Gulf Opportunity Zone incentives; and
- IRC § 7652(f) “cover over” of tax on distilled spirits to Puerto Rico and the U.S. Virgin Islands;
- Grants under the American Recovery and Reinvestment Act of 2009 for specified energy property in lieu of tax credits.
A few expired provisions that were contained in earlier proposed extenders legislation but that do not appear in HR 4853 include:
Refunds and Federal Assistance
- IRC § 30B credit for alternative motor vehicle credit for advanced lean burn technology motor vehicles, qualified hybrid motor vehicles, and qualified alternative fuel vehicles;
- IRC § 165(h) deduction for personal casualty losses in federally declared disasters;
- IRC § 172(j) carryback of net operating losses attributable to federally declared disasters; and
- IRC § 1400E renewal community tax incentives.
Under the bill, any refund made to an individual would not be taken into account as income for purposes of determining eligibility for any federal assistance or assistance under a state or local program financed by federal funds (new IRC § 6409).
Sunday, December 12, 2010
How the Tax Deal Could Affect Your Finances
http://online.wsj.com/article/SB10001424052748703518604576013942450422736.html
Edited by CRISTINA LOUROSA-RICARDO
President Obama called the bipartisan tax agreement announced last week a "framework." There's still no comprehensive outline of the proposals. And its passage by Congress isn't assured.
But the deal does address a range of tax issues that have been in question for months or years. Here's how the various provisions could affect taxpayers.
Individual tax rates: The Bush-era tax rates would be extended for two years for all taxpayers. Current rates would remain in place, with a top rate of 35%.
Capital gains: Current rates would be extended, and the top rate on long-term capital gains would remain at its historic low of 15% for two years.
Dividends: Current rates would be extended, and the top rate for qualified dividends -- those on most stocks held longer than two months -- would remain 15% for two years.
Payroll tax: The agreement calls for a two-percentage-point cut in an employee's portion of payroll (FICA) taxes, just for 2011. The change would make the tax 4.2%, instead of 6.2%, on the first $106,800 of wages per worker, according to the nonpartisan Tax Policy Center.
Alternative minimum tax: A two-year "patch," for 2010 and 2011, would keep the AMT exemption at or near current levels.
Extenders: The framework doesn't address several popular "extenders" that will expire this year or have already done so, but White House officials said they were included in the agreement for 2010 and 2011. Among them: transfers of IRA assets to charities by those over age 70 1/2; a state and local sales-tax deduction for itemizers; an additional standard deduction for real-estate taxes; and a deduction for teachers' expenses.
Unemployment insurance: Federal benefits would be extended at their current level for 13 months, through 2011.
Selected tax credits: The framework proposes to extend the $1,000 child credit and maintains its expanded refundabilty for working families for two years. It also would expand the Earned Income Tax Credit for larger families and married couples, and maintain both the higher-education tax credit and its partial refundabilty for the same period.
-- Laura Saunders
The Wall Street Journal
Spending Payroll Windfall
Working taxpayers will get a little, temporary raise, if the payroll-tax reduction in the tax agreement goes into effect. It isn't life-changing money -- the benefit tops out at $2,100 per year for anyone making $106,800 or more -- but it's enough to have a ripple effect if used wisely.
Legislators, of course, are hoping you'll do what Americans usually do with extra cash: buy things, patriotically heating up the economy. In fact, studies show that structuring a tax cut in precisely this way -- a little bit over a longer period of time, as opposed to a lump sum -- stimulates spending, not saving.
Will many people actually stash the cash? Probably not, says Ross Eisenbrey, vice president at the Economic Policy Institute, a think tank: "Most people are probably going to spend it."
But perhaps you'd do better to set your own agenda. Experts say there are ways to use the cash that will turn that 2% raise into a much bigger windfall. Here are three of them:
Juice retirement savings. Contribute that extra 2% to a 401(k) or individual retirement account. In this instance, you also would save on taxes since the added contribution to those plans would be pretax. Contributing the money to a Roth IRA would also be a small tax lottery because experts largely expect taxes to rise after 2012 -- making today's after-tax dollars (Roth contributions are made with after-tax dollars) "cheaper" than they will be in the future.
Create a health-care kitty. The cost of health care is expected to go up next year -- an expense most families haven't yet felt, or budgeted for, but one the payroll-tax cut could well cover.
Employees are projected to pay about 15% more next year for health-insurance deductibles and co-payments, with the average deductible about $675 for a single person and about $1,500 for a family with a preferred-provider insurance plan, according to the Kaiser Family Foundation.
Upgrade your appliances. As appliances get older, they get more expensive, says Scott Brown, owner of New Hampshire-based appliance-repair company Samurai Repair Man. They break and need repairs, and they get less efficient, which means higher energy bills.
-- AnnaMaria Andriotis
SmartMoney.com
Financial Literacy
Ever wonder how good the fellow residents of your state are at managing household finances? Find out on the website usfinancialcapability.org.
A small spoiler: New York, New Jersey and New Hampshire were among the top five states in at least three of five measures of financial capability, according to a survey of more than 28,000 people released last week.
Financial capability was measured based on these components: how many households spend more than their income; whether individuals had a "rainy day" fund to cover three months' worth of expenses in case of an emergency; how many individuals used nonbank borrowing methods in the past five years; how high individuals scored on five financial literacy questions; and how well individuals comparison-shopped, obtained credit reports and checked credit scores, and understood financial contracts.
The survey was funded by the FINRA Investor Education Program Foundation in consultation with the Treasury Department and the President's Advisory Council on Financial Literacy.
-- Maya Jackson Randall
Dow Jones Newswires
—The Aggregator features news and commentary from The Wall Street Journal and other publications. Email: cristina.lourosa@wsj.com
Edited by CRISTINA LOUROSA-RICARDO
President Obama called the bipartisan tax agreement announced last week a "framework." There's still no comprehensive outline of the proposals. And its passage by Congress isn't assured.
But the deal does address a range of tax issues that have been in question for months or years. Here's how the various provisions could affect taxpayers.
Individual tax rates: The Bush-era tax rates would be extended for two years for all taxpayers. Current rates would remain in place, with a top rate of 35%.
Capital gains: Current rates would be extended, and the top rate on long-term capital gains would remain at its historic low of 15% for two years.
Dividends: Current rates would be extended, and the top rate for qualified dividends -- those on most stocks held longer than two months -- would remain 15% for two years.
Payroll tax: The agreement calls for a two-percentage-point cut in an employee's portion of payroll (FICA) taxes, just for 2011. The change would make the tax 4.2%, instead of 6.2%, on the first $106,800 of wages per worker, according to the nonpartisan Tax Policy Center.
Alternative minimum tax: A two-year "patch," for 2010 and 2011, would keep the AMT exemption at or near current levels.
Extenders: The framework doesn't address several popular "extenders" that will expire this year or have already done so, but White House officials said they were included in the agreement for 2010 and 2011. Among them: transfers of IRA assets to charities by those over age 70 1/2; a state and local sales-tax deduction for itemizers; an additional standard deduction for real-estate taxes; and a deduction for teachers' expenses.
Unemployment insurance: Federal benefits would be extended at their current level for 13 months, through 2011.
Selected tax credits: The framework proposes to extend the $1,000 child credit and maintains its expanded refundabilty for working families for two years. It also would expand the Earned Income Tax Credit for larger families and married couples, and maintain both the higher-education tax credit and its partial refundabilty for the same period.
-- Laura Saunders
The Wall Street Journal
Spending Payroll Windfall
Working taxpayers will get a little, temporary raise, if the payroll-tax reduction in the tax agreement goes into effect. It isn't life-changing money -- the benefit tops out at $2,100 per year for anyone making $106,800 or more -- but it's enough to have a ripple effect if used wisely.
Legislators, of course, are hoping you'll do what Americans usually do with extra cash: buy things, patriotically heating up the economy. In fact, studies show that structuring a tax cut in precisely this way -- a little bit over a longer period of time, as opposed to a lump sum -- stimulates spending, not saving.
Will many people actually stash the cash? Probably not, says Ross Eisenbrey, vice president at the Economic Policy Institute, a think tank: "Most people are probably going to spend it."
But perhaps you'd do better to set your own agenda. Experts say there are ways to use the cash that will turn that 2% raise into a much bigger windfall. Here are three of them:
Juice retirement savings. Contribute that extra 2% to a 401(k) or individual retirement account. In this instance, you also would save on taxes since the added contribution to those plans would be pretax. Contributing the money to a Roth IRA would also be a small tax lottery because experts largely expect taxes to rise after 2012 -- making today's after-tax dollars (Roth contributions are made with after-tax dollars) "cheaper" than they will be in the future.
Create a health-care kitty. The cost of health care is expected to go up next year -- an expense most families haven't yet felt, or budgeted for, but one the payroll-tax cut could well cover.
Employees are projected to pay about 15% more next year for health-insurance deductibles and co-payments, with the average deductible about $675 for a single person and about $1,500 for a family with a preferred-provider insurance plan, according to the Kaiser Family Foundation.
Upgrade your appliances. As appliances get older, they get more expensive, says Scott Brown, owner of New Hampshire-based appliance-repair company Samurai Repair Man. They break and need repairs, and they get less efficient, which means higher energy bills.
-- AnnaMaria Andriotis
SmartMoney.com
Financial Literacy
Ever wonder how good the fellow residents of your state are at managing household finances? Find out on the website usfinancialcapability.org.
A small spoiler: New York, New Jersey and New Hampshire were among the top five states in at least three of five measures of financial capability, according to a survey of more than 28,000 people released last week.
Financial capability was measured based on these components: how many households spend more than their income; whether individuals had a "rainy day" fund to cover three months' worth of expenses in case of an emergency; how many individuals used nonbank borrowing methods in the past five years; how high individuals scored on five financial literacy questions; and how well individuals comparison-shopped, obtained credit reports and checked credit scores, and understood financial contracts.
The survey was funded by the FINRA Investor Education Program Foundation in consultation with the Treasury Department and the President's Advisory Council on Financial Literacy.
-- Maya Jackson Randall
Dow Jones Newswires
—The Aggregator features news and commentary from The Wall Street Journal and other publications. Email: cristina.lourosa@wsj.com
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