Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010
Welcome to the Taxation Law Section's blog. We will be
using the blog as one method providing information on recent tax
law developments to our section members. We are pleased to
provide our members with our first post that provides an overview
of the recently enact federal tax law.
On December 16, 2010, Congress passed, and on December 17, 2010
the President signed into law the Tax Relief, Unemployment
Insurance Authorization, and Job Creation Act of 2010 (the
"Act"). The Act extends the so-called "Bush era tax cuts"
until the end of December, 2012. The Act affects various areas of
federal taxes, including but not limited to income, transfer and
payroll taxes. Unfortunately, all of the provisions of this
new tax law are only effective for two years.
In the income tax area, the Act extends the reduction of the
federal income tax brackets to 15%, 25%, 28%, 33% and 35%, which
were slated to return to 15%, 28%, 31%, 36% and 39.6%, on January
1, 2011 as well as the long term capital gains rate and qualified
dividends rate at 15%.
In the transfer tax area, the Act includes significant changes
to the estate, gift and generation-skipping transfer tax laws.
For 2010, the new legislation changes the estate, gift and
generation-transfer tax laws as follows:
- the estate tax exemption amount (the amount that can pass tax
free on an individual's death) is increased to $5,000,000;
- the maximum estate tax rate is reduced to 35%;
- the modified carryover basis rules have been repealed;
- the estate tax applies to decedents dying in 2010, unless the
estate's executor elects to have the federal estate tax law that
has been in effect in 2010 (i.e., no estate tax and a modified
- the gift tax applicable exclusion amount remains at $1,000,000;
- the generation-skipping transfer tax is reinstated with an
exemption amount of $5,000,000, however, the tax rate for
generation-skipping transfers made in 2010 is zero.
Beginning in 2011, the estate, gift and generation-skipping
transfer tax will each have a $5,000,000 exemption amount (adjusted
for inflation after 2011) and the maximum tax rate will be 35%.
The Act also introduces a new estate planning tool in the estate
and gift tax area, which is portability. Portability allows a
decedent's unused exemption amount to be transferred to the
surviving spouse. Specifically, for estates of decedents dying
after 2010, the decedent's executor may elect to transfer any of
the decedent's unused exemption amounts to the decedent's surviving
spouse. Portability applies only to the estate and gift
tax exemptions. It does not allow for portability of a
deceased spouse's generation-skipping transfer tax exemption.
Also, while an individual's exemption will be indexed for inflation
after 2011, the unused exemption of a deceased spouse transferred
to the surviving spouse will not be indexed for inflation.
In the payroll tax area, an employee's social security portion
(OASDI) of the FICA will be reduced to 4.2% from 6.2% for
2011. Similarly, an individual's OASDI portion of the
self-employment tax will be reduced to 10.4% from 12.4% for
The Act extends the alternative minimum tax (AMT) patch as well
as extends through 2011 the provision that excludes from gross
income (up to $100,000 per taxpayer, per year) distributions from
an IRA made to a charity.
The above only provides a brief overview of some change brought
about by the Act. For a detailed description of the above
changes and of other changes made by the Act, I refer you to the
Act and the Joint Committee on Taxation's Technical Explanation of
Link to the Act:
Link to the Joint Committee on Taxation's Technical Explanation of
The Act should be considered carefully as it will affect tax
planning going forward (at least for the next two years).
Tax advisors must also keep in mind that states, particularly in
the estate tax area, have their own laws. For example, while
the federal estate tax laws will now affect only decedent's who
dies with estates of $5,000,000 or more as well as providing more
flexibility with the inclusion of the portability provisions,
Massachusetts has not changed its estate tax laws. The
Massachusetts estate tax continues to be imposed on estates of
Massachusetts' decedents dying estates of $1,000,000 or more.
We hope this helps you in your practice.
Lisa M. Rico, Taxation Law Section Chair