The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (HR 4853) was signed last Friday by President Obama. This act will provide tax relief to all employees in the country. As reported a few months ago, the individual income tax rate reduction that the country has been operating with in for the past decade would have expired creating tax increases for everyone. This new act will continue these tax rate reductions for two more years (2011 & 2012), as well as including a multitude of other changes for the next couple of years.

One of these other changes is a reduction in employees’ portion of social security taxes. For the year 2011, the social security tax that employees pay will be reduced by 2% from 6.2% to 4.2%. The employer will still need to pay the full 6.2% of taxes and not just a matching 4.2%. This tax reduction applies for all wages up to the maximum wage cap of $106,800, meaning a maximum of $2,136 tax reduction. Self-employed individuals will pay 10.4% (4.2% employee portion + 6.2% employer portion) on self-employed income.

Additional changes to individuals include: no limits on itemized deductions for high income earners; no phase out of personal exemptions for high income earners; the child tax credit remains at $1000; marriage penalty relief extended; enhanced Earned Income Tax Credit extended; capital gains and dividend rates stay the same; another “patch” to the Alternative Minimum Tax; estate tax rate increase was reduced and exclusion increased. These are only a portion of the changes and updates made to our tax laws made by the Tax Relief Act of 2010. Also all of the changes made in this act are only temporary extensions or actions.