Expiring Tax Provisions

As we enter the heart of the political season, you will begin to hear much discussion concerning which Presidential candidate, or which political party, has the best tax policies. Most of the discussion will center around whether the “Bush tax cuts” should be extended or not. Although the current tax policies were primarily adopted during President Bush’s term in office – and thus referred to as the “Bush tax cuts,” most of the provisions were approved by a bipartisan vote of both Republicans and Democrats as a way to stimulate the economy during the recession of the last decade.

The “Bush tax cuts” were also extended during the administration of President Obama. Without an additional extension, the main provisions of the “Bush tax cuts” are set to expire as of December 31, 2012 – the end of this year. Many economists contend that the provisions must be extended again to keep our soft economy from falling back into a recession.

The following is a brief look at a few of the provisions set to expire:

  • Marriage Penalty Tax – Currently the tax bracket for married filers is equal to twice that of the single filer (which is logical since a married couple is two people). If the current provision is not extended, a married couple’s bracket will be reduced to 1.66 times the bracket of a single person, basically penalizing a married couple.
  • Capital Gains Tax – The current maximum tax rate for long-term capital gains is 15%. That amount will increase to 20% in 2013 without an extension.
  • Dividends – Dividends are currently taxed as capital gains. Beginning in 2013, dividends would be taxed at your ordinary income tax rates.
  • Tax Rates – Under the “Bush tax cuts” provision, there are six tax brackets for ordinary income – 10%, 15%, 25%, 28%, 33%, and 35%. Without an extension, those rates would revert to only five brackets at 15%, 28%, 31%, 36%, and 39.6%, effectively raising everyone’s taxes by 3 to 5%, if not more.
  • Dependent Care Tax Credit – the credit would drop from $1,050 for one child to $720 and from $2,100 for two or more children to $1,440.
  • Child Tax Credit – The refundable tax credit of $1,000 per qualifying child under the age of 17 would be reduced to $500 with stricter rules for obtaining the credit.
  • Estate Tax – While only estates that exceed $5 million are currently taxed at a flat 35%, if the tax cuts are not extended all estates greater than $1 million will be subject to a 55% estate tax.

In addition to the few tax provisions mentioned above, there are countless other provisions that are set to expire as of the end of this year.

As the political discussions heat up over the next few months and the candidates take positions on these and other provisions, you will have at least a basic understanding of some of the critical issues at stake in the political discourse. Be informed, pray about your decision, and then cast your vote for the candidate of your choice. Never take for granted your opportunity to participate in our representative democracy. God Bless America!!

About benefitsboard

Art Rhodes is the President and CEO of the Church of God Benefits Board, Inc. - the administrator of the Ministers' Retirement Plan and the Church Loan Fund, Inc. The corporate offices of the Benefits Board are in Cleveland, TN.
This entry was posted in Form W-2, Internal Revenue Service, Pay Roll Taxes. Bookmark the permalink.

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