Individual Tax Relief
Above-the-line deduction for certain expenses of elementary and secondary school teachers. The legislation extends through 2011 the $250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books, supplies (other than non-athletic supplies for courses of instruction in health or physical education), computer equipment (including related software and service), other equipment, and supplementary materials used by the educator in the classroom.
Deduction of state and local general sales taxes. The bill extends through 2011 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.
Repeals the personal exemption phaseout for an additional two years, through 2012.
Repeals the itemized deduction limitation though 2012.
Capital Gains
Extends capital gains rates. Under the Act, through Dec. 31, 2012, long-term capital gains (with the exception of 28% rate gains and unrecaptured IRC Section 1250 gains) will continue to be taxed at a maximum rate of 15%; instead of 20% (18% for assets held more than five years).
Child Tax Credit
Extends the child tax credit. The legislation extends the current child tax credit for an additional two years, through 2012.
Marriage Penalty Relief
Extends marriage penalty relief. The legislation extends the marriage penalty relief for the standard deduction, the 15 percent bracket, and the earned income tax credit for an additional two years, through 2012.
Incentives for Families and Children
Extends the expanded dependent care credit, the increased adoption tax credit, the adoption assistance programs exclusion, and the credit for employer expenses for child care assistance.
Education Incentives
Extends the expanded Coverdell Accounts, the expanded exclusion for employer-provided educational assistance, the expanded student loan interest deduction, the exclusion from income of amounts received under certain scholarship programs, and the American Opportunity Tax Credit.
Alternative Minimum Tax (AMT)
Two-year AMT patch. Currently, a taxpayer receives an exemption of $33,750 (individuals) and $45,000 (married filing jointly) under the AMT. Current law also does not allow nonrefundable personal credits against the AMT. The legislation increases the exemption amounts for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for 2011 to $48,450 (individuals) and $74,450 (married filing jointly). It also allows nonrefundable personal credits against the AMT. It is effective for taxable years beginning after December 31, 2009.
Estate and Gift Taxes
Estate, gift and generation skipping transfer tax relief. Prior legislation (EGTRRA) phased out the estate and generation-skipping transfer (GST) taxes so that they were repealed in 2010, lowered the gift tax rate to 35%, and increased the gift tax exemption to $1 million for 2010. Under EGTRRA, the estate tax was set to return in 2011, with the top estate and gift tax rate at 55%.
For 2010, the Act allows decedents dying in 2010 to choose between (1) the estate tax (based on a $5 million exemption and 35% top rate), or (2) no estate tax, but a carryover basis for income tax purposes, with $1.3 million and $3 million basis adjustments. Also for 2010, the gift tax exclusion remains $1 million with a 35% rate. For gifts made after Dec. 31, 2010, the Act reunifies the gift tax with the estate tax. The Act lowers estate and GST taxes for 2011 and 2012 by increasing the exemption amount to $5 million (indexed after 2011); and reducing the top rate from 55% to 35%. Further, a portability provision is added for 2011 and 2012 that permits a surviving spouse to apply any unused portion of a deceased spouse's $5 million exemption to the survivor's estate.
Payroll Taxes
Reduction in employee-paid payroll taxes. Under current law, employees pay a 6.2 percent Social Security tax on all wages earned up to $106,800 (in 2011) and self-employed individuals pay a 12.4 percent Social Security self-employment taxes of on all their self-employment income up to the same threshold. The bill provides a payroll/self-employment tax holiday during 2011 of two percentage points. This means employees will pay only 4.2 percent on wages and self-employed individuals will pay only 10.4 percent on self-employment income up to the threshold. Employer portion remains unchanged.
