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