By James A. Woehlke, Esq., CPA
COO / General Counsel, MBL Benefits Consulting Corp.

The Society of Human Resource Managers (SHRM) alerted its membership to begin preparing employees for the demise of the Bush-era tax cuts. Originally enacted in 2001 and causing revision of withholding tax tables in July of that year, these tax cuts are set to expire in 2011.

SHRM published the following chart comparing the current (Bush-era) tax brackets with those that are likely to resume on January 1 as well as the currently expected adjustments to be proposed by the Obama administration for passage later in the year.

Description Current rates 2011 Scheduled rates Obama FY2011 budget
Individual income tax rates 10%, 15%, 25%, 28%, 33%, 35% 15%, 28%, 31%, 36%, 39.6% 36% and 39.6% top rate for high income filers*
Qualified dividends 0%, 15% Taxed at individual rate (max 39.6%) 20% for high-income filers*
Long-term capital gains 0%, 15% 20% 20% for high-income filers*
Estate tax 0% 55% top rate, $1 million exemption 45% top rate, $3.5 million exemption

* High-income filers are generally defined as taxpayers with adjusted gross income of more than $250,000 as joint filers and $200,000 for individuals. The Obama administration would retain the current tax rates for lower and middle income individuals.

SOURCE: L. Pettus and T. DiLorenzo “Here Today, Gone Tomorrow: Planning for the expiring Bush tax cuts” (October 20, 2010) http://www.shrm.org/LegalIssues/FederalResources/Pages/HereTodayGoneTomorrow.aspx.

It is possible that the lame-duck session of Congress could see continuation of the current rates, but it is prudent to prepare your workforce to enable them to begin planning for the possible shrinkage in take-home pay at the beginning of 2011.

If you are interested in more information on the change in withholding tables, please contact your MBL Benefits consultant or the author at jwoehlke@mblbc.com.

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