President Barack Obama this past Tuesday announced a compromise that would extend Bush-era tax cuts for two more years, keeping income tax rates at their current levels for everyone. It is expected that the agreement will be signed into law by mid-December.
If the compromise is signed into law, here's what it will mean for you:
Payroll taxes: Wage earners will have extra money in their paychecks with the reduction of the payroll tax from 6.2% to 4.2%. For example, someone earning $50,000 per year would pay $1,000 less in Social Security taxes next year. Someone earning $100,000 would pay $2,000 less. The payroll tax would go back up to 6.2% in 2012.
Income taxes: Not much to see here - at least in terms of your wallet. The compromise would extend Bush-era tax cuts for two more years, which basically means that income tax rates will remain exactly the same for the next two years - at their current levels for everyone.
Individual tax breaks: Low- and middle-income tax filers will see an increased value in credits for two years if they file for an earned income tax credit, the child credit or a revamped tax credit for college costs.
Unemployment benefits: The package would extend unemployment benefits through the end of next year for workers laid off for more than 26 weeks and fewer than 99 weeks.
Estate taxes: The estate tax exemption, which lapsed this year, would be reinstated at a rate of 35% for estates worth more than $5 million.
This means that investment profits should not be locked in by year-end solely for more favorable capital gains rates, and that large gifts should not be made by year-end only for tax reasons.
It also means that there is now direction for estate tax planning. Existing plans should be reviewed and even simplified. The higher estate tax exemption will provide additional opportunities for asset protection.
For more information regarding the compromise and its potential implications, or a review of your estate plan, please contact Wayne C. Buckwalter, Chair of Cohen Seglias' Wealth Preservation Group at (215) 564-1700 or firstname.lastname@example.org.