<Jobs and growth Tax Relief of 2003>

Over the past few months, there has been much talk of the new tax act that President Bush signed into law on May 28, 2003. The intent of the Jobs and Growth Tax Relief Reconciliation Act of 2003 is to lower taxes for many sectors of the population, from families to businesses to investors. This, in turn, is expected to stimulate the sluggish economy by providing taxpayers with a larger share of their income to spend, save, or invest.

In this and future articles I will discuss the new tax act and it's affects on various individuals and entities. As always, generalizations may be made in regards to whom the new law affects and how it will affect them. Each individual situation may vary from the norm and may require professional advice. If you have questions about your own situation please contact our office.

Individual changes and/or benefits

There are many changes affecting most individual taxpayers, from the wealthy to the lower income families. Many of these changes are temporary or an acceleration of the changes that were scheduled to occur under the prior tax relief act signed by President Bush in 2001.

First, effective January 1, 2003 through December 31, 2004, tax brackets have been changed. The ten percent tax bracket has increased from the first $6,000 in taxable income to the first $7,000 for single filers and from the first $12,000 to the first $14,000 taxable income for married couples and qualifying widows/widowers. The current ten percent bracket for head of household filers remains unchanged. For the years 2005 through 2007 the amount will be reduced back to $6,000 and $12,000 but will be increased again to the 2003-04 levels in the year 2008.

In addition, an increased 15 percent bracket for married filers will be in affect for 2003 and 2004. Under the new law, married filers will be taxed at 15 percent on taxable income equal to 200 percent of that of single filers. This will then be reduced in 2005 to 180 percent of taxable income; 2006 to 187 percent; 2007 to 193 percent. In 2008 and later the tax bracket will again be 200 percent.

Married filers will also see relief from the marriage tax penalty in the form of a higher standard deduction for 2003 and 2004. The standard deduction will increase to twice the amount of a single taxpayer, or $9,500. But this deduction will decrease to the pre-2003 Tax Act levels in 2005, then increase again through 2008, until it returns to twice the single standard deduction in 2009.

The higher tax rates will also be decreased as of January 2003. The current rates of 27%, 30%, 35%, and 38.5% will be reduced to 25%, 28%, 33%, and 35% respectively. However, these new tax rates are scheduled to increase in the future to higher than current rates. After 2010, these rates are scheduled to increase to 28%, 31%, 36%, and 39.6%.

According to Congressional Committee Reports accompanying the new tax law, these changes are meant to reduce the marriage tax penalty for married couples and provide greater incentive for individuals to increase their work efforts and take entrepreneurial risks. The new tax rate withholding tables were to be sent to employers by mid-June and should be in use by July 1, 2003, allowing individuals to take home a larger portion of their paychecks now instead of waiting for a refund when their taxes are filed.

However, complications may arise if you make estimated tax payments in addition to having taxes withheld from your paycheck or your spouse's paycheck. You may wish to continue using the prior withholding tables or increase your estimated tax payments to avoid a possible underpayment of tax penalty at the end of the tax year. Seek the advice of your tax planning professional if you have questions about the affects of this new tax law on your estimate payments.

Most low- to middle-income individuals with children have probably heard about the increase in the child tax credit or the advanced refund associated with this increase. Again, for the 2003 and 2004 tax years the child tax credit has increased from $600 to $1,000 per qualifying child. As with the standard deduction for married taxpayers, this credit will be reduced again in 2005 to levels set by the 2001 tax act. For tax years 2005 through 2008, the child tax credit will be $700, in 2009 it will increase to $800, and in 2010 it will return to $1,000. The income phase-out levels have not been affected by this law but will remain at $75,000 for single filers and $110,000 for married filers (modified adjusted gross income).

The advance refund to be distributed by the government may be as much as $400 per qualifying child. A qualifying child is one who is under the age of 17 and is claimed as a dependant on your tax return. The federal government will issue checks for the advance refund according to the information filed on a taxpayer's 2002 return and mail them in late July and early August according to the last two digits of your social security number. For example, if the last two digits are between 00 and 33, and you qualify for the advanced refund, it will be mailed to you on July 25. Numbers between 34 and 66 will be mailed the following week on August 1 and numbers between 67 and 99 will be mailed on August 8. The government will not issue any advance refund checks after December 31, 2003. The result of receiving an advance refund will be a reduction of the $1,000 credit on your 2003 tax return. So please keep the information regarding this advance refund to use in preparing your 2003 return.

These are some of the changes instituted by the new tax law of 2003 that affect the individual taxpayer and this article is not meant to be all encompassing of the new law. Many more changes are included that affect businesses, large and small, and non-corporate investors. In coming articles we will address these changes and their affects on the taxpayers involved.

Jobs & Growth Tax Relief of 2003

Individual changes and/or benefits