The New Tax Plan: What It Means For You

Now that the House has passed the $858 billion tax package and it's on its way to President Obama, you probably want to get a really good idea what it's composed of and what it means for you. Two major components obviously are it will extend the Bush tax rates for two more years, and will add more than a year of benefits for those who are long-term unemployed. But there's plenty more in the bill, so let's take a look at what exactly in the bill. The federal income tax rates that George W. Bush enacted in 2001 and 2003 will remain in place through 2012. If Congress didn't act, everyone's rates would've gone up next year. This includes the tax on capital gains, something which affects all traders and investors. Long-term unemployment benefits get extended for 13 more months. The estate tax is now going to be a 35% tax levied on estates $5 million or more. If no estate provision had been passed, it would've been a 55% tax on $1 million or more. Social Security tax holiday There is a payroll tax holiday that allows employees to pay 4.2% of each paycheck into Social Security, instead of the 6.2% they were paying. This is on wages up to $106,800. The "Making Work Pay," credit will expire. It was only worth $400 to those making $75,000 or less and $800 to those couples making $150,000 or less. The alternative minimum tax patch continues into 2011 and the exemptions increase slightly, according to Bankrate.com. For married filers, the 2011 threshold is at $74,450 and $48,450 for single or head of household taxpayers and $37,225 for married taxpayers filing separate returns. The $1,000 per child tax credit is good until 2012. It was slated to go to $500 per child. This is good for people earning under $75,000 and couples earning under $110,000. The tax credit of up to $3,000 for dependent care for children under 13 stays. For college aged kids, the credit is $2,5000 for those making under $90,000. The Bush tax cuts really helped married filers and will continue to do so. Before the cuts, married couples received better deductions if they filed separately, as opposed to filing jointly. This is no longer the case. There are a number of other energy- and business-related tax credits were also being extended or expanded, such as energy efficient home improvements or buying energy-efficient new homes.