President Obama and congressional leaders reached a tentative agreement this week to extend the Bush tax cuts for another two years and slash the employee payroll tax, along with a slew of temporary tax incentives. Here's what they could mean for you.
President Obama and congressional leaders reached a tentative agreement this week to extend the Bush tax cuts for another two years and slash the employee payroll tax, along with a slew of temporary tax incentives.
At a press conference, President Obama called the so-called tax cut agreement “a good deal for the American people.”
That said, the proposed tax cuts are just that — proposals. No formal legislation has been introduced, and it’s likely that the Senate and House will want to weigh in with their own provisions, which could stall the measure … or kill it entirely.
Though none of the proposed provisions are set in stone, here’s a look at how some of the proposals could affect taxpayers if the proposals are enacted:
Income-Tax Rates. Individual income tax rates, topping out at 35% for the wealthiest taxpayers, would remain at the Bush-era tax levels for all taxpayers until 2013.
Employee Payroll Tax. The employee's portion of payroll, or FICA, taxes, would be cut to 4.2% from 6.2% on the first $106,800 of wages for 2011. For top earners, the cut would translate into a $4,272 bump in the paycheck for married working couples, or $2,136 for singles.
Capital Gains and Dividend Rates: The top rate on long-term capital gains and qualified dividends would remain at 15% for two years.
Alternative Minimum Tax: The AMT, initially designed to prevent the rich taxpayers from using loopholes to avoid paying any federal income tax, was never indexed to inflation. As a result, a growing number of middle-class taxpayers are getting hit with the tax. The new proposal would extend a two-year "patch" for 2010 and 2011, which would keep the AMT exemptions at 2009 levels. Unless a patch is enacted, the exemption for married couples filing jointly will drop to $45,000 from nearly $71,000, and more than 30 million taxpayers will owe AMT for 2010.
Unemployment Insurance: The proposal would extend federal unemployment benefits at their current level for 13 months.
Business-Expense Deduction: Businesses would be allowed to expense 100% of capital investments in 2011, and 50% in 2012, instead of depreciating the expense over time.