With the clock winding down on 2010, one of the most biggest news stories about the lame duck session of Congress was whether we’d get a resolution to the issue of income taxes. With tax rates set to increase in 2011 after the sunset of the Bush era tax cuts, which the name given to the tax cuts in the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

There were two big changes that affected most Americans. First, there was a two year extension to the “Bush era tax cuts” signed into law in 2001 and 2003 that maintains the current tax brackets. They were set to revert back to higher rates but now they will remain the same for the next two years when they can become a proper election year topic.

The other major change was a payroll tax holiday, which effectively gives everyone a 2% raise. If you have a job, take a look at your most recent paycheck. You’ll see a contribution to Social Security and Medicare – sometimes it’s rolled up into one line as FICA. For 2011, there will be a 2% reduction in the amount you pay towards Social Security which can result in up to $2,136.

Some changes that affect fewer people include extending federal unemployment benefits, changing the estate tax, patching AMT, and the extension of the Child Tax Credit, Earned Income Tax Credit, and the American Opportunity Tax Credit. With the estate tax, the top rate was lowered to 35% (from the 55% it would’ve been in 2011) and the exemption was raised to $5 million (up from $1 million).

Estimated cost? $858 billion over 10 years.

Jim writes about personal finance at Bargaineering.com.

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