With only 15 days left in 2010, the U.S. House of Representatives finally passed the sweeping tax extender legislation, clearing the way for the bill to make its way to the White House. After some procedural snafus delayed the vote by several hours, the bill was approved late Thursday evening by a surprisingly-large bipartisan majority of 277-148. The bill had previously been approved by an 81-19 vote in the Senate earlier in the week.
Officially titled the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, the bill extends all of the Bush-era tax cuts through 2012. While a continuation of these tax breaks is important to all Americans, it is especially meaningful for the millions of Subchapter S corporation shareholders who are taxed not only on their individual earnings, but also on the earnings of the S corporations of which they are owners.
Had Congress not passed the tax extender bill, the highest individual income tax bracket would have gone from 35% to 39.6%, the capital gains tax rate would have increased from 15% to 20% and the tax on qualified dividends would have jumped from 15% to the individual marginal tax rate (potentially 39.6%). The prospect of tax increases of this magnitude had many Sub S bankers and shareholders alike questioning the continued viability of the Subchapter S tax structure. Fortunately, the Sub S bank community has received a temporary reprieve, which, hopefully, will allow Congress the time necessary to develop a more permanent solution.
In addition to extending the Bush-era tax cuts, the bill also temporarily extended a number of tax relief provisions, including individual alternative minimum tax relief and estate tax relief. Also included in the bill were provisions extending several expiring tax credit programs such as the New Markets Tax Credit Program and the special rule for S corporations making charitable contributions of property. The legislation also extended unemployment benefits for an additional 12 months and provided a temporary reduction in payroll taxes.