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On December 17, 2010 the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Act) was signed into law by President Obama. The following is a summary of the Act’s many taxpayer-friendly provisions we think will affect most individuals:

Lower Tax Rates Extended through 2012. The Act extends the 10%, 15%, 25%, 28%, 33%, and 35% federal income tax rates on ordinary income through 2012. Without the new law, these rates would have been replaced in 2011 and beyond by the pre-Bush rates of 15%, 28%, 31%, 36%, and 39.6%.

The Act also extends the 0% and 15% federal income tax rates on most long-term capital gains and dividends through 2012. Without the new law, most long-term capital gains would have been taxed at 10% or 20% and dividends would have been taxed at ordinary rates of up to 39.6%.

Marriage Penalty Relief Extended through 2012. The 2001 Bush tax cut legislation eased the marriage penalty by adjusting the lowest two tax brackets for married couples and giving them bigger standard deductions. The Act extends them through 2012.

Social Security Tax Reduction for 2011 Only. The Act reduces the 6.2% Social Security tax withholding rate on employee wages from 6.2% to 4.2%. This temporary change only affects wages up to the Social Security tax ceiling (the first $106,800 of 2011 wages). The maximum savings are $2,136 for unmarried individuals and $4,272 for couples. The Social Security tax component of the self-employment tax is cut from 12.4% to 10.4% for 2011, so self-employed individuals will benefit as well.

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