The President and Congress have given the country an early Christmas gift. They have passed an extension of the 2001-2003 Bush era tax cuts.
What this means is that your income tax bill won’t automatically increase, at least not for the next 2 years. Congress will have to revisit this issue again in 2012. They are hoping, however, that by then the economy will be much stronger as a result of the decisions made today.
Had this extension not been made, you could have seen your tax rate increase anywhere from 3% to as much as 5% depending upon your tax bracket. You also would have lost the teacher expenses deduction and had a return of the “Marriage” penalty in the tax rates.
Instead you keep these items for the next 2 years and also get a boost in your paycheck for 2011. Effective January 1, 2011, there will be a 2% reduction in the Social Security withholding tax. This reduction could mean as much as $2,136 back into your net paycheck during 2011. To offset the revenue lost on the Social Security change, Congress has removed the $400 Making Work Pay tax credit.
I believe that this tax extension is a good move regardless of any political reasoning behind. It will help the economy somewhat but until there is a move on either jobs creation or freeing up loans for small business, we still have a long road ahead.
Either way, enjoy your gift and if you have questions, please feel free to give me a call at 240-356-5050. Also, feel free to make relevent comments on this post.
To Your Financial Health.
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