What tax changes were really in the State of the Union?

In his State of the Union speech, President Obama addressed several changes he is proposing to reduce the tax burden on US taxpayers.  Here are four of the items mentioned in the speech and an opinion of what the proposal will really mean.

Elimination of capital gains tax-This one got a lot of people excited, because they understand selling investments and having to pay tax on the gain.  There are currently provisions to allow for up 75% exemption of capital gains on certain investments in small businesses.  I don’t believe you will see complete elimination of capital gains, but you can probably expect the existing  provision for investment in small business stock to jump to a 100% exemption.

Credit for new hires-Most people understand that to mean some type of exemption from employment taxes for new hires in the form of a credit up to $5,000.  Don’t be surprised if there is a time limit that would apply during some initial period following employment like 3-6 months following the date a new employee is hired.  It is also expected to include an employment tax exemption for wage increases on people earning under the FICA wage limit of $106,800. There is currently no provision like this in the tax laws.  Everyone has heard the news coverage about potential bankruptcy of Social Security, which means passage of this type of exemption could be difficult.  In favor of this provision is the fact that incentives for new jobs is a hot topic in Washington and the National Small Business Association has been pushing for something like this for years.

Tax credit for college education.-There are already provisions for tax credits for college cost available, but due to expire this year.  I think you can expect to see Congress vote to extend the existing credits, at least for a while.

Child tax credit-There is already a provision to allow a tax credit for child care expenses for dependents under the age of 13. The percentage allowed as a credit decreases from 35% to 20% of qualifying expense, as adjusted gross income increases from $1 to $43,000.  The new provisions will most likely involve expanding the current eligibility to higher income families by increasing the percentages for higher wages.  The 35% credit would most likely be available to families earning up to $85,000 with the percentage reducing between $85,000 and $115,000 in adjusted gross income.