Here are some of the details of President Obama’s income tax plan and how they may affect you:
Income Tax Rates
The target is to maintain current rates in the 10-28% brackets of most Americans. For earners in higher brackets, Obama has proposed a 3-4% increase. This may be delayed because of the weak economy.
Capital Gains/Dividends
The maximum rate of 15% could be increased to 20% for investors with incomes greater than $250,000. Under current law, taxpayers in the two lowest income-tax brackets pay zero capital gains in 2008, 2009 and 2010.
Obama is considering eliminating capital gains taxes on start-ups and small businesses to encourage innovation. This could be the most positive change in the tax law for the economy and for small business owners as well.
Retirement Accounts
There is discussion of suspending mandatory distributions for taxpayers older than 70½ to allow savings to stay in the market. The change could also permit taxpayers to withdraw up to $10,000 from retirement accounts penalty-free; the withdrawals would still be subject to income taxes, and higher withdrawals would still be subject to penalties.
Tax Cuts/New Credits
A tax credit of up $1,000 to offset social security taxes for low-wage earners is on the table. This could be extended to the employers’ share of an employee’s social security tax as well.
Other proposed cuts and credits:
- eliminate income tax on seniors earning less than $50,000 a year
- double the tax credit for college expenses to $4,000,
- create a 10% mortgage tax credit for those who don’t itemize deductions,
- provide a $1,000 rebate funded by a windfall-profits tax on oil companies (this one may already be off the table with oil prices coming down)
AMT – Alternative Minimum Tax
After years of wrangling, the credit against AMT may finally be indexed for inflation.
Social Security
Maintain the current wage ceiling of $106,800, but index it for inflation. Impose a supplemental tax of 2% to 4% paid by employers and employees on earnings exceeding $250,000 — but delay implementation until there is consensus on the future of social security.
With so many possible credits and deductions, you may worry a few will slip through the cracks. That won’t happen with TurboTax Online. We help you find every deduction you deserve—and even search your return for missed deductions—so you don’t overlook any opportunity to save. Learn more about President Obama’s plan for income tax.
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