PRIOR YEAR TAX INFO: use as reference only!
The Jobs & Growth Tax Relief Reconciliation Act of 2003
otherwise known as 'that new tax cut'
Here are the basics.
Read 'What it means' for quick explanations.
Child Tax Credit: The credit is being increased $400, from $600 to $1,000 for up to two dependent children under age 17. Rather than waiting to file your 2003 tax return to realize the benefit, you may have received an advance refund check (remember those a couple of years ago?), sent out this summer of 2003.
Lower-income families who would not get the regular child tax credit because of no tax liability did not get an advance credit. (Same for higher-income families who earned above the new phase-out level).
The IRS used last year's tax return to determine the amount of credit, or partial amount if that brought the taxpayer's liability down to zero.
The full credit will be $1,000 for 2003-2004, then according to this schedule.
What it means: Families with dependent children under 17 received a $400 or $800 advance refund check (or partial amount) this August if they were eligible and received the child tax credit for 2002.
Tax Rate on Investments: Right now there are, well, several rates. After the law passes, there will be, well, several rates, the changes effective from May 6, 2003.
Dividends were taxed at your marginal (highest) rate. They will now be taxed at 15% (5% for those in the 15%/10% bracket).
Long-term capital gain was taxed at 20% for those in the 27% (now 25%) bracket and above; and 10% (8% rate with a 5-year holding period) for those in the 15%/10% bracket.
So the long-term capital gain rates will drop:
(There are certain dividends and capital gain transactions whose tax rates remain unchanged. For example, some mutual fund dividends will continue to be taxed at your marginal rate.)
- 20% down to 15%
- 10% down to 5%, with 0% in 2008. (Are there a lot of low-income people with investments??)
These new rates will expire after 2008, unless new tax laws are passed. You can be sure there will be more.
What it means: Taxpayers with investments will pay lower rates for the next several years.
Marriage Penalty: Accelerates the process of adjusting the brackets and standard deductions (see this page) so the married-filing-joint deduction ($9,500) would equal that of two single-filing deductions, and the married-filing-separate deduction will equal a single-filing deduction ($4,750).
The 15%/10% tax bracket is adjusted to double that of a single filer, but then higher brackets kick in earlier (relative to double-single), ditto for MFS equaling S for just the 15%/10% brackets.
What it means: Two single people getting married won't get hit by paying more in combined taxes.
Business: Effective May 6, 2003, there is an additional option of a first year bonus depreciation of 50% of the asset being placed in service. So now, choices can be made among 30% and 50% bonus depreciation, Section 179 expensing and regular depreciation for eligible property.
What it means: Small businesses (and not-so-small businesses) can deduct more of the cost of the asset immediately rather than deducting it over the predetermined lifetime of the asset.
Lower Tax Rates/Tax Bracket Adjustments: Accelerates the changes that were due for 2003 to 2006, see this page for more information on that 2001 tax package.
Three tax brackets decreased 2%, the top bracket dropped 3.6%, but the 15%/10% bracket remains the same rate. However, since the 10% bracket increases to cover another $1,000 (except for Head of Household), those filing S/MFS will benefit $50, MFJ/QW will gain $100.
Since this change is retroactive to January 1, 2003 employers will be withholding even less tax to adjust for the new rates.
What it means: You'll see more in your paycheck for the rest of the year if you are in a higher-than-15% tax bracket.
2003 Tax Rates Standard Deductions/Personal Exemption Other Tax Adjustments
