Certified Public Accountants

Highlights of the 2010 Tax Act

Temporary Payroll Tax Cut

· All wage earners, including self-employed individuals will see a reduction in their FICA/Social Security tax for 2011 as a result of a one-year payroll tax holiday. 

· The reduction is a 2% point decrease in the employee portion of Social Security tax.  The employee portion of the Social Security tax is currently 6.2% on the first 106,800 of wages, but the payroll tax holiday reduces the rate to 4.2%.   For a self-employed taxpayer, the rate will drop from its current rate of 12.4% to 10.4% on the first 106,800.



Other Select Provisions

· The new law provides for a 100% deduction in the first year for the purchase of a broad array of capital assets used in a trade or business.  Normally these assets would be depreciated over several years.  The assets must generally be placed in service after September 8, 2010 and before January 1, 2012.

· A two-year extension for the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes

· A two-year extension for the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers

· A credit for first-time District of Columbia homebuyers is retroactively restored and extended for property purchased after December 31, 2009 and before January 1, 2012.  The amount of the credit is generally the lesser of $5,000 or the purchase price of the residence. The credit is phased out beginning at $70,000 of modified adjusted gross income ($110,000 on a joint return).

· The law extends the exclusion for tax-free IRA distributions of up to $100,000 if donated directly to a charity for distributions made in tax years beginning after December 31, 2009 and before January 1, 2012. 

· The American Opportunity Tax Credit (AOTC) for higher education expenses is extended through 2012

· The qualified tuition deduction is retroactively extended through 2011.

· The exclusion for employer-provided educational assistance, and restoration of the exclusion for graduate-level courses are extended through 2012

· A two-year extension for various business research and development credits.

· The law also provides for an extension to unemployment benefits through 2011.





Back                     Next

Highlights of the Tax Relief, Unemployment Insurance

 and Job Creation Act of 2010 (Continued)

Date: 12/28/2010