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2010 Tax Relief

The “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” was a sweeping tax package that included, among many other items, an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year “patch” of the alternative minimum tax (AMT), a two-percentage-point cut in employee-paid payroll taxes and in self-employment tax for 2011, new incentives to invest in machinery and equipment, and a host of retroactively resuscitated and extended tax breaks for individuals and businesses.

Here’s a look at the key elements of the package:

  • Favorable income tax rates will be retained for two years (2011 and 2012), with a top tax of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
  • Employees and self-employed workers get a reduction of two percentage points in Social Security tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
  • A two-year Alternative Minimum Tax (“AMT”) “patch” for 2010 and 2011 provides a modest increase in AMT exemption amounts and allows personal nonrefundable credits to offset AMT as well as regular tax.
  • Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 are retained. For example, the new law extends for two years: (a) the $1,000 child tax credit (and maintains its expanded refundability); and (b) the American Opportunity tax credit for higher education, and its partial refundability.
  • Two crackdowns on deductions for higher-income people have been deferred.