2011 & beyond Tax Deal

Income tax rates would not change (for anyone, rich or poor) from what they will be this year, for at least two more years. It would reduce the 6.2 percent Social Security payroll tax on all wage earners by two percentage points for one year, putting more money in the paychecks of workers. For a family earning $50,000 a year, it would amount to a savings of $1,000. For a worker slated to pay the maximum tax — $6,621.60 on income of $106,800 or more in 2011 — the cut would mean a savings of $2,136. That would replace the tax break for middle- and low-income Americans in last year’s economic stimulus measure. The top rate of 15 percent on capital gains and dividends would remain in place for two years, and the alternative minimum tax would be adjusted so that as many as 21 million households would not be hit by it. The deal would also renew the American Opportunity Tax Credit, for undergraduate expenses, for two years (it was set to expire in 2010). The maximum credit remains $2,500, and can be used for the first four years of post-secondary education and covers qualifying tuition and related expenses. In 2010, the credit phases out for married people filing joint returns who earn $160,000 to $180,000 and for singles earning $80,000 to $90,000 (experts say it’s likely to remain at those levels for the next two years, but those details are still not clear). Forty percent of the credit is refundable, which means you will receive money back even if you have no federal tax liability. Total cost of tax breaks is estimated at $900B.