Tax Bracket
Whether you love President Bush or hate him, chances are his new tax
cut will bring you some savings. Politics aside, the Jobs and Growth
Tax Relief Reconciliation Act of 2003, which passed Congress (barely)
on May 23, has nothing but good news for taxpayers — and many
of the most important changes are retroactive to Jan. 1 of this year.
As expected, the main beneficiaries are married couples with children,
investors, high-income folks and small business. But there's something
here for almost everybody. '
In order to placate deficit hawks, all the new breaks were made subject
to "sunset rules." So the tax goodies will vaporize in future
years unless Congress takes action to extend them. That said, I think
most or all of the favorable changes will be with us for some time.
After all, members of Congress won't want to expose themselves to charges
that they effectively enacted a tax increase by failing to renew expiring
breaks. So Congress has painted itself into a corner here — which
is probably exactly what President Bush had in mind all along.
First and foremost, the individual rate cuts included in the 2001 Bush
Tax Cut legislation are accelerated. They now kick in effective on Jan.
1, 2003. Previously, they weren't scheduled to become effective until
2004 and 2006. Revised payroll-tax withholding tables for the second
half of this year will reflect the new and improved 2003 rates:
27% rate goes to 25%
30% rate goes to 28%
35% rate goes to 33%
38.6% rate goes to 35%
The existing 10% and 15% rates remain unchanged
Sunset Rule: Without further action by Congress, rates will revert
to 15%, 28%, 31%, 36%, and 39.6% after 2010. The 10% rate would disappear
altogether.
The 10% rate bracket is widened retroactive to Jan. 1. Specifically,
the 10% bracket is expanded by $2,000 for joint filers (from $0-12,000
of taxable income to $0-14,000) and by $1,000 for singles and married
individuals who file separately (from $0-6,000 of taxable income to
$0-7,000). This means more of your income will now be taxed at the low
10% rate unless you use head-of-household filing status. For heads of
households, the 10% bracket covers the first $10,000 of taxable income,
same as before.
Sunset Rule: Unless Congress takes further action, these changes would
vanish after 2004.
For years people have griped about having to pay higher taxes just
because they got married. The new law doesn't completely eliminate the
so-called marriage penalty, but it does deliver meaningful tax savings
to joint filers and married persons who file separately from their spouses.
Relief comes in the form of expanded 15% brackets and larger standard
deduction amounts.
Here's the deal:
· The 15% bracket for joint filers is now exactly twice as wide
as the 15% bracket for singles. So for joint filers, the 15% bracket
now tops out at taxable income of $56,800 (up from $47,450).
· The standard deduction for joint filers is now exactly double
the amount for singles. So for joint filers, the standard deduction
is now $9,500 (up from $7,950).
· The 15% bracket for married-filing-separate status is now the
same as for singles, and so is the standard deduction. So the married-filing-separate
15% bracket now tops out at taxable income of $28,400 (up from $23,725).
The married-filing-separate standard deduction is now $4,750 (up from
$3,975).
Sunset Rule: These changes are scheduled to last only for 2003 and
2004 unless Congress renews them.
Tax Bracket
