Tax Cut Bill: A Guide to the Extensions, Cuts and Credits

Below is a summary of the major provisions of the tax cut deal that was passed by the Senate yesterday and is being debated in the House today.

Reductions in Individual Income Tax Rates:

• Lower tax rates for taxpayers regardless of income.
• 10% Tax Bracket - Extends through 2012 the 10% individual tax bracket, the lowest tax rate for those individuals making up to $8,500 and married couples making up to $17,000. If the tax cut extension is not approved the 10% tax rate increases to 15%.
• 25%, 28%, 33% and 35% Tax Bracket - Extends through 2012 the current tax brackets that are set to expire at the end of 2010. The top tax rate 35% applies to those individuals making over $379,150 annually. If the tax cut extension is not approved the 35% tax rate would increase to 39.6%.
• Temporarily Repeals Itemized Deduction Limitation - extends repeal of itemized deduction limitation for two years for high income earners.

Payroll Tax Holiday:

• Through 2011, employees who pay 6.2 percent Social Security tax on wages earned up to $106,800 will get a temporary payroll tax holiday of two percentage points decreasing their contribution to 4.2 percent on wages earned. Self-employed individuals will receive a reduction in payroll self-employment tax from 12.4 percent to 10:4 percent.

Capital Gains and Dividends:

• Temporarily extends the capital gains and dividends rates - extends current capital gains and dividend rates for all taxpayers for two years through 2012 resulting in lower taxes. Current rates are zero percent for those taxpayers below the 25% tax bracket and 15% for those taxpayers 25% tax bracket and above. If the tax provisions expire the capital gains tax rates become 10% and 20% respectively. Dividends will be taxed at ordinary income tax rates.

Estate Tax

• Lowers the estate tax for two years - the proposal allows estates of $5 million per person and $10 million per couple to pass to heirs tax free through 2012. Amounts over $5 million and $10 million would be taxed at the 35% tax rate.

Marriage Penalty Relief

• Temporarily extends the expiring increase in the standard deduction for married couples.
• Temporary Extension of Unemployment Benefits:
• Allows for one year extension of federal unemployment insurance benefits and emergency unemployment compensation benefits.

What else is included in the tax cut bill?

Energy

• Biodiesel and renewable diesel - extends through 2011 the $1.00 per gallon production tax credit for biodiesel.
• Energy-Efficient new homes credit - extends through 2011 tax credit for manufacturers of energy efficient residential homes.
• Alternative fuels credit - extends through 2011 the $.50 (cents) per gallon alternative fuel tax credit.
• Ethanol - extends through 2011 the per gallon tax credits for ethanol. Includes existing $.54 (cents) tariff on imported ethanol.
• Energy Efficient Appliances - extends through 2011 tax credit for manufacturers of energy-efficient large appliances.

Individuals

• Elementary and Secondary school teachers - extends the $250 deduction for out of pocket classroom expenses for teachers.
• Deduction of State and Local General Sales Tax - extends itemized deduction for state and local sales tax in lieu of state income tax deduction.
• Deduction for qualified tuition and related expenses - extends tax deduction for qualified education expenses.
• Mass Transit Benefit - extends tax break for commuters who use mass transit. Allowing individuals tax free dollars for commuting on mass transit.
• Child Tax Credit - More generous $1000 child tax credit.
• Earned Income Tax Credit (EITC) - More generous EITC for low income families.

Businesses

• Research and Development - extends Research and Development (R&D) capital expense tax credit for businesses.
• Railroad Track Maintenance Credit - extends through 2011 tax credit for railroad track maintenance.
• Mine Rescue Team Credit - extends through 2011 tax credit for training mine rescue team members.
• Mine Safety Equipment - extends 50 percent bonus depreciation for certain qualified underground mine safety equipment.
• Real Estate Development - extends through 2011 tax breaks for capital improvements to restaurants and other retail buildings.
• Motorsports Entertainment complexes (NASCAR) - extends through 2011 tax breaks for capital improvements land and support facilities at motorsports entertainment complexes.
• Food Inventory - extends through 2011 provision allowing business an enhanced charitable deduction for contributions of food inventory.
• Film and TV Expenses - extends through 2011 provision allowing film and TV productions to expense first $15 million of those production costs incurred in the United States. ($20 million if incurred in an economically depressed area in the U.S.)
• Empowerment Zones - extends through 2011 designation of certain economically depressed areas as empowerment Zones. Businesses and individual residents within empowerment zones are eligible for special tax incentives.

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