Early this morning, the U.S. House of Representatives passed a tax bill extending the so-called Bush-era tax cuts as well as making law a first-ever reduction in the payroll tax, albeit for only a one-year period. Following is a summary of the major provisions of the bill.
Tax Cuts Extended for Two Years
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.
Preferential Rates For Capital Gains and Qualified Dividends Extended for Two Years
Long-term capital gain rate will continue to be taxed at a maximum rate of 15%.
Temporary Employee/Self-Employed Payroll Tax Cut for 2011
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 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.
Tax Breaks for Individuals 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; the above-the-line deduction for qualified tuition and related expenses;
The rule allowing premiums for mortgage insurance to be deductible as interest that is qualified residence interest and;
The tax credit for energy-efficient improvements to existing homes.
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