Last year President Barrack Obama signed the Tax Relief, Unemployment Insurance reauthorization, and Job Creation Act into Law. This “Act” extends the “Bush” tax rates for individual, includes a temporary employee payroll tax cut, patches the Alternative Minimum Tax, extends certain deductions and 2009 stimulus credits, and temporarily modifies the estate tax provisions.
The Act for the most part extends the current tax regime for another two years (through 12/31/12), but some provisions are only applicable after 2011.
A short summary of the major provisions affecting service members and their families are as follows:
Marginal Tax Rates: The marginal rates applicable to a member’s taxable income will remain: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent (after 12/31/12, the rates become: 15 percent, 28 percent, 36 percent, and 39.6 percent).
Capital gain/Dividend: Capital gains and dividends will be taxed at 0 percent for those members below the 25 percent bracket and 15 percent for those in the 25 percent bracket or higher (after 12/31/2012, the rates for capital gains become 10 percent and 20 percent respectively and dividends will be taxed as ordinary income).
AMT Patch: The AMT exemption amount for calendar year 2010 is increased to $72,450 (married filing jointly), $47,450 (unmarried individuals), and $36,225 (married filing separately). The exemption amount for calendar year 2011 will be $74,450, $48,450, and $37,225 respectively.
Payroll Tax cut for 2011: For calendar year 2011, the tax rate for social security tax is reduced to 4.2 percent from 6.2 percent on basic pay under $106,800.
Relief from Marriage Penalty: The standard deduction for a married filing jointly couple will remain double that of individuals. The 15 percent bracket for married filing jointly couple will also remain double that of individuals. Both provisions will remain through calendar year 2012.
Personal exemption and itemized deduction: Personal exemption phase-out and itemized deduction limitation will remain repealed through calendar year 2012. The Personal exemption amount for 2011 is $3,700 per eligible person.
Educator Expenses Deduction: Qualified taxpayers will continue to be entitled to an above the line deduction of up to $250 for certain unreimbursed educator expense through calendar year 2011.
Tuition and Fees: Eligible taxpayers will continue to be entitled to an above the line deduction for qualified high education expenses.
Source: U.S. Department of Defense