The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010
On Dec. 16, 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, otherwise known as the Middle Class Tax Relief Act of 2010.
Among other things, this bill extends unemployment benefits for 13 months, provides a two-year fix to the Alternative Minimum Tax, allows for a one-year reduction in the FICA payroll tax and temporarily extends various income-tax cuts that were implemented during the Bush Administration. It also provides major changes to the federal gift and estate tax. All of this provides a reasonable degree of certainty for tax planning purposes the next two years, but only two years. In 2012, we’ll be going back to square one, which should make for some interesting election debates!
Listed below are some of the key features of this bill.
A two-year extension of all current tax rates through 2012
- Tax brackets remain unchanged at 10%, 25%, 28%, 33% and 35%
- Qualified capital gains and dividends will be taxed at a maximum rate of 15% (zero percent for taxpayers in the 10% and 15% income tax brackets)
- Repeal of the phase-out for personal exemptions and temporary repeal of the phase-out for itemized deductions
- Marriage penalty relief is extended through 2012
Temporary modification of Estate, Gift and Generation-Skipping Transfer Tax for 2010, 2011 and 2012
- The new provisions set the top rate at 35% with a $5 million exemption ($10 million for married couples) for estates, gifts and generation-skipping transfers for decedents dying on or after Jan. 1, 2011, and on or before Dec. 31, 2012. This presents some interesting new possibilities for gifting strategies, In 2013, the GST tax, like the estate and gift taxes, will revert to a $1 million exemption and a 55% tax rate barring further action by Congress
- The Act revives the traditional stepped-up basis for all assets included in the gross estate for decedents dying on or after Jan. 1, 2011, and on or before Dec. 31, 2012
- The Act introduces the concept of “portability” of the unused exemption whereby a surviving spouse can take advantage of the unused portion of the “exclusion amount” of his or her predeceased spouse, effectively creating a $10 million exemption for married couples.
Other provisions apply only for the tax year 2011. These are the extension of federal unemployment insurance for one year and an employee payroll tax cut. The legislation reduces the “employee share” of Social Security tax to 4.2% from the current 6.2% for wages earned in calendar year 2011. The employer’s share of the tax remains at 6.2%. The Social Security component of the self-employment tax drops to 10.4% from 12.4%. Medicare tax rates and rules remain unchanged at 2.9% (1.45% from the employer and employee.)
In the charitable giving area, tax-free distributions of $100,000 from individual retirement plans have been extended as well as contributions of capital gain real property for conservation purposes.
Rest assured that the team at R.W. Rogé & Co. is reviewing all these provisions to be sure that your portfolios and planning are on track for the next two years.
If you should have any questions, please feel free to give us a call.