All Eyes are on Congress


All eyes are on Congress as they return to session today. Millions of taxpayers are waiting to see if a number of tax credits, established during 2001 to 2003 under George W. Bush’s reign, will expire or be extended. The hope is that these tax credits are extended. If Congress chooses to do nothing and the tax credits expire, here is what we are in for:

  1. Increased Federal Income tax brackets -  Currently, the marginal income tax brackets are 10%, 15%, 25%, 28%, 33% and a maximum 35%.  If Congress does not act, the current 10% bracket will disappear and the lowest rate will be 15%.   The next rate will be 28%, while the existing 28% bracket will be replaced by a 31% bracket.  The 33% bracket will be 36% and the top tax rate will be 39.6% versus the 35%.
  2. Decrease in the child tax credit – Currently, taxpayers with dependent children under 17 and who are within certain adjusted gross income limits, enjoy a credit of $1,000 against their income tax.  After December 31, 2010, without action, this credit will decrease to $500.  In addition, the $3,000 threshold for determining the refundable portion  of the child tax credit will also disappear. 
  3. Increase in Long-term Capital gain rate For the past few years, the maximum federal rate on long term capital gains (assets held longer than a year) and qualified dividends has been 15%.  Starting next year, the long term capital gain rate will be 20% and dividends will be taxed as ordinary income at a maximum rate of 39.6%.


Other tax credits that are expected to end as of December 31, 2010 include:

  • Residential energy tax credit incentives for high efficiency heating, venting and air conditioning equipment, water heaters, high performance windows, storm windows and doors, insulation weatherizing and roofing.
  • Making work pay tax credit of up to $400, $800 for couples married filing jointly.


The Obama Administration has some proposals to either extend or modify these tax credits.  What should you do now?  If at all possible, continue to maximize on IRA, Roth IRA or 401(k) contributions or equivalents for the self employed.  In addition, you can call my office to schedule a tax planning appointment to make sure your tax liability is minimized.