- 'Marriage penalty' relief will disappear (this includes the equalization of the income tax brackets where joint filers would be taxed similarly as 2 singles).
- Capital gain & dividend rates will go up - long-term capital gain rate will reach a maximum of 20%; dividends will be taxed at ordinary income tax rates (no preferential treatment)
- Coverdell Education Savings Accounts (formally known as Education IRAs) will be reduced to a maximum contribution amount of $500 (down from $2000) per beneficiary. Corporations and other entities will no longer be able to make contributions.
- Employer-provided education assistance exclusion will end.
- Student loan interest deduction will see phase-out at lower AGI levels.
- Credit on total day-care and dependent care expenses will drop. Also, the total expenses used for the credit will drop from $3000 (1 qualified individual) to $2400. Maximum credit % drops from 35% to 30%.
- Child credit (for children under 17) will be reduced from $1000 to $500.
- Voluntary withholding rate on certain federal payments goes up (Rises to 7%, 15%, 28%, 31%)
- Voluntary withholding rate on unemployment benefits rises to 15%.
- Standard Deduction for joint filers is reduced. (167% of Standard Deduction for single filer)
- Minimum withholding rates on supplemental wages (bonuses, etc) under flat rate method will rise to 28%.
Some aspects of the law will not expire since they were made permanent or extended by subsequent legislation. The Pension Protection Act of 2006 repealed sunset provisions from this existing law as they related to IRAs, pensions, and other qualified plans. The contribution levels for each of these plans will not be affected.
LFC will continue to monitor this situation as we get closer to 12/31/12.
Please contact LFC with any questions.
