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December 2, 2012

House, Senate sit on tax bills

(Continued)

WASHINGTON — Payroll Tax

Neither bill addressed the payroll tax cut, which reduced the Social Security payroll tax paid by workers from 6.2 percent to 4.2 percent in 2011 and 2012. If the tax cut expires, a typical worker making $50,000 in wages would get a $1,000 tax increase next year.

Estate Taxes

Senate: Does not address the estate tax, allowing the top rate to increase from 35 percent to 55 percent. Currently, the first $5.1 million of an estate is exempt from the federal estate tax; the exemption rises to $10.2 million for married couples. If the tax cut expires, the exemption would be reduced to $1 million for individuals and $2 million for couples.

House: Extends the top rate of 35 percent through 2013, with the larger exemption.

Child Tax Credit

Both bills extend the $1,000-per-child tax credit through 2013. If Congress does not act, the tax credit is scheduled to revert to $500 per child next year.

Senate: Extends a 2009 provision that makes the child tax credit available to more families that don’t make enough money to owe federal income taxes.

Earned Income Tax Credit:

Both bills extend a more generous credit first enacted under Bush. The EITC provides tax credits to low-income families based on their income and number of children. The credits are available as payments to many families that don’t make enough money to owe federal income taxes.

Senate: Extends a 2009 provision that makes the credit more generous for families with three or more children.

Education tax breaks

Both bills extend more generous tax deductions for interest on student loans and exemptions for employer-provided educational assistance.

Senate: Extends a tax credit of up to $2,500 a year for college costs, first enacted in 2009.

Alternative Minimum Tax

Both bills spare millions of middle-income families from paying the alternative minimum tax for 2012. The tax was first enacted in 1969 to make sure higher-income taxpayers could not use tax breaks to avoid paying any federal income tax. The income limits, however, were not adjusted for inflation, so Congress routinely fixes the law to spare middle-income families.

Congress has yet to patch the law for 2012. So if lawmakers don’t act, about 28 million middle-income families will face unexpected tax increases averaging more $3,000 when they file their 2012 tax returns next spring.

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