The new tax law, signed by President Obama on December 17, 2010, temporarily extends the 2001 – 2003 federal income tax rate cuts, extends unemployment for 13 months, implements new payroll tax breaks, reestablishes the estate tax, and more.

This is good news for most taxpayers. With this long recession, we all need tax breaks, don’t we?

See how the new tax law and extensions affect you.

Source: Fidelity

Lowers payroll tax – On incomes up to $106,800, there is a 2% reduction (from 6.2% to 4.2%) on an employee’s share of the Social Security portion of the FICA tax. For someone who makes $60,000, they could take home an additional $1,200 a year in 2011.

Extends 2001 – 2003 income tax cuts – On all incomes, the new tax law extends the Bush-era tax cuts. That means there will be no change in income tax rates 2011 – 2012.

The Child Tax Credit – This tax break will be extended for 2 years. It’s worth about $1,000 per eligible child, up to a $3,000 refundability threshold. The Child Tax Credit helps low and moderate income families to reduce their federal income tax by a certain amount for each qualifying child under age 17.

The Earned Income Tax Credit –The agreement continues a Recovery Act expansion of the Earned Income Tax Credit worth an average of $600 for families with 3 or more children, and reduces the “marriage penalty” faced by working married families.

The American Opportunity Tax Credit – The new American Opportunity Tax Credit would be continued. It’s a partially refundable tax credit that helps more than 8 million students and their families afford the cost of college.

Business Expensing – This will allow businesses to expense 100% of their investments in 2011. 50% expensing in 2012.

Extends unemployment for 13 months – Extends unemployment until January 2012, for those who qualify. Read more about the unemployment extension of 2010.

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Featured in Carnival of Wealth #21 – Jan 16 2011 Edition.

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