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What the New Tax Bill Means for You

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By Jennifer Waters

RISMEDIA, December 22, 2010—(MCT)—The new tax bill that President Barack Obama recently signed will save every American from a number of tax increases that would have begun January 1, 2011, and will add more than a year of benefits for those who are long-term unemployed. But there are plenty of other tax perks in the bill, most of which extend breaks already in place. Here’s a rundown:

-Marginal tax rates: Federal income-tax rates, which were lowered under the Bush tax plans of 2001 and 2003 and scheduled to end December 31, 2010, will remain in place through 2012. Had Congress and Obama not reached a compromise on the tax bill, everyone’s taxes would have risen on January 1, 2011. That includes an extension of lowered capital-gains taxes for investors.

-Unemployment benefits: Long-term unemployment benefits get extended for 13 months.

-Estate tax: Among Obama’s concessions to Republicans is a 35% tax levied on an inheritance of $5 million or more. If no estate provision had been passed, wealthy families would have been hit with a 55% tax on an inheritance of $1 million or more beginning January 1, 2011, according to the Tax Institute at H&R Block. House Democrats originally balked at the provision, seeking a higher tax on the wealthiest estates.

-Social Security tax holiday: The so-called payroll tax holiday stays put too, meaning employees who pay 6.2% in Social Security taxes out of each paycheck will pay just 4.2% for the next year on wages up to $106,800.

-Making Work Pay: The “Making Work Pay,” which was part of the 2009 Recovery Act, is set to expire December 31, 2010 and will not be renewed. The credit was worth $400 to taxpayers making $75,000 or less ($800 to couples earning under $150,000).

-Alternative minimum tax: The alternative minimum tax patch continues into 2011 and the exemptions increase slightly, according to Bankrate.com. For married joint filers, the 2011 threshold is at $74,450; its $48,450 for single or head of household taxpayers and $37,225 for married taxpayers filing separate returns.

-Tax breaks for families: The $1,000 per child tax credit stays through 2012 rather than reverting to $500 per child. The credits begin to phase out for singles with adjusted gross income of $75,000 and $110,000 for married couples. The tax credit of up to $3,000 for dependent care for children under 13 sticks too. If the kids are now in college, the $2,500 “American Opportunity Credit” for the first four years is available for anyone with a salary of $90,000 or less.

-Marriage penalty relief: Marriage still gets a reprieve. The Bush tax law aimed at fixing the so-called marriage penalty is extended to 2012. Before the 2001 tax changes, married couples got better deductions filing separately rather than in a joint tax return. Since then, the standard deductions for joint filers was double than that for individuals. Without these, joint filers with taxable incomes at $57,000 and above would have faced a tax increase in 2011, according to the Tax Institute.

-Other breaks: A number of additional energy- and business-related tax credits were also extended or expanded, including popular credits for homeowners who make energy-efficient home improvements or buy energy-efficient new homes.

(c) 2010, MarketWatch.com Inc.

Distributed by McClatchy-Tribune Information Services.

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