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2010 Bush Era Tax Cuts Extenders Bill Explained

I held back on putting up a post about the fate of our tax brackets [3] because of all the political tap dancing lately, with both sides complaining about the compromise, but it appears that we’ve reached a final resolution.

The timeline:

If you’re one to keep track of who scored which political points, then I think each side came out with what they wanted. President Obama and Democrats received tax cuts for the middle class, extension of unemployment, and a stimulus by way of a payroll tax reduction. Republicans received tax cuts for everyone, as well as a reduction in the estate tax from what it would’ve been in 2011 given no action. Fiscal conservatives, who were all the rage in November, saw nothing.

Bush Era Tax Cuts

The Bush era tax cuts, ushered in with bills from 2001 and 2003, will be extended for two years.

In addition to extending the tax cuts, there will also be a payroll tax holiday of 2% for employees. Normally, you pay 6.2% in payroll taxes (Social Security and Medicare) on your first $106,800 of earnings. For 2011, you would only be paying 4.2%, a maximum reduct of $2,136.

Unemployment Benefits Extension

The extension of unemployment benefits died a few weeks back and rose from the ashes as part of a compromise. Originally the highest tier (extended benefits), 99 weeks, was reserved for those in states (25) with high employment (8.5%+) and the deadline was November 30th. If you want a primer, here’s a fantastic one [6] by Ezra Klein of the Washington Post as well as a discussion of unemployment in general.

Estate Tax

The estate tax [7], which expired this year and was scheduled to return next year at 55% with a $1 million exemption, will return with a top rate of 35% and a $5 million exemption (remember, this doesn’t include $1 million you can give away without paying a gift tax [8] and the $5 million is per person, so a couple can pass $10 million tax free).

There were a few smaller (i.e. less headline-worthy I suppose) tax items:

What do you think?