Just before its holiday break, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The law temporarily reduces employee contributions to Social Security, extends the unemployment insurance assistance put in place to help job seekers caught up in the recession, and continues a number of other tax benefits. Here are the details:
- Payroll tax cuts. The amount employers are required to withhold from employee paychecks to fund Social Security will be temporarily reduced from 6.2% to 4.2%. (Employer contributions will remain at 6.2%; withholding for Medicare will also stay the same, at 1.45% each for employees and employers.) This is an extra $20 in your paycheck for every $1,000 you earn. Employers are required to start withholding the new lower amount by January 31, 2011, and to adjust employee paychecks by March 31, 2011, to make up for any amount improperly withheld in January.
- Unemployment benefits extended. The law reinstates the Emergency Unemployment Compensation (EUC) program, which lapsed temporarily on November 30, 2010. Most states offer an initial 26 weeks of unemployment benefits. For those who haven't found a job when these benefits run out, the EUC program provides another 34 to 53 weeks of benefits, depending on the state's unemployment rate. A separate federal-state program, the Extended Benefits Program, provides another 13 to 20 weeks of benefits to employees who exhaust their EUC benefits. With the EUC program reinstated through the end of 2011, employees are once again eligible for a maximum of 99 weeks of benefits in some states; the "99ers" -- those who have already used their 99 weeks -- aren't helped by the new law.
- Extended tax credits and deductions. The law extends a number of popular tax breaks that were set to expire at the end of this year, from deductions for education expenses to credits for certain energy efficient home improvements.
- Estate tax break. Before the law passed, estates worth more than $1 million would have owed 55% in estate taxes next year. The law lowers the tax rate to 35% and exempts estates worth $5 million or less.
Effective date: Dec 20, 2010