Newsletters | January 2011
New Tax Changes to look out for this year
Overview of the new law: The 2010 Tax Relief Act provides temporary relief. Among other changes, it reduces estate, gift and generation-skipping transfer (GST) taxes for 2011 and 2012. It preserves estate tax repeal for 2010, but in a roundabout way: estates wanting zero estate tax for 2010 must elect that option, along with the less favorable modified carryover basis rules that were set to apply for 2010. Otherwise, by default, the estate tax is revived for 2010, with a $5 million exemption, a top tax rate of 35%, and a step-up in basis. Also, for estates of decedents dying after Dec. 31, 2010, a deceased spouse's unused exemption may be shifted to the surviving spouse. However, these generous rules are temporary-much harsher rules are slated to return after 2012.
Important changes that you'll need to take into account if you are paying an employee
Withholding Tax: New federal withholding tables have been issued. An annual federal withholding allowance is now valued at $3,700 (previously, $3,650).
The Social Security withholding tax rate on wages earned by employees has been temporarily lowered from 6.2% to 4.2% for one year, effective with wages earned beginning Jan. 1, 2011. The IRS is advising employers to implement the 4.2% employee Social Security rate as soon as possible, but no later than Jan. 31, 2011. The maximum benefit that a worker will receive from the tax rate reduction is $2,136 (i.e., $106,800 Social Security wage base x 2%). Employers will continue to pay Social Security taxes at a 6.2% rate.