The $858 billion legislation, a product of negotiations between Obama and Republican lawmakers in the Senate, also continues a cut in Social Security taxes. That means you'll continue to bring home more in your paycheck.
The deal extends through 2012 the Bush-era reductions on income, capital gains and dividends taxes. The bill also extends unemployment insurance benefits through 2011, providing relief to thousands of jobless Americans who stopped receiving unemployment checks as of Dec. 1.
Among other ways the extension of the Bush tax cuts affects you:
- Your tax rates will remain at their current levels -- 10%; 15%; 25%; 28%; 33%; and 35%, based on your income. It also maintains lower tax rates on your investments for the next two years.
- If you make less than $90,000 a year, the bill provides an extension of the $2,500 credit you've been receiving to help pay for college tuition, which was begun under last year's economic stimulus bill.
- It will be easier for you to provide for your children. Under the Bush bill, you got a child tax credit of $500. That has now increased to $1,000.
House Democrats bristled at the agreement Obama reached with Republicans on Dec. 6, saying it gave too much to the rich. In addition to eliminating a tax break for households making $250,000 a year or more, Democrats wanted to raise the top rate on estate taxes to 45% on inheritances of more than $3.5 million.
The Senate bill contains a provision that would exempt as much as $5 million from the inheritance tax and subject estates in excess of that amount to a 35% tax.
Whether the bill would be considered for a vote in the House on Thursday was in doubt for a while after the measure was abruptly pulled from the chamber's schedule. But a quickly implemented rules change allowed the measure to be debated and voted upon, with the final tally coming at nearly midnight.
Democratic members of the House had raised objections to the change because it would have required those who wanted to increase the rate for estate taxes to simultaneously approve the entire tax-cut measure.
The Senate passed the measure Wednesday by an overwhelmingly margin of 81-19.
Despite the confusion caused by the rules change, which would have allowed House to amend the bill to include a higher estate tax, the legislation was largely seen as passing. Ultimately, however, not enough Democrats singed on to support the higher estate-tax proposal.