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| Tax Relief in 2003 |
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President Bush signed a $350 billion tax package into law on May 28, 2003. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA)—the third largest tax package in history—could spell relief to many people. Besides decreases in most individual tax rates, a boost in the child tax credit, and relief for married couples and small business owners, there's also good news for investors. Here are highlights of the new legislation:
Lowered Marginal Tax Rates
The new law reduces the tax rates for most brackets1:
| Tax Bracket |
Previous Tax Rate |
New Tax Rate |
| Single and joint filers whose taxable income exceeds $311,950 |
38.6% |
35% |
| Single and joint filers with taxable income over $143,500 and $174,700 respectively |
35% |
33% |
| Single filers with taxable income of over $68,800 to $143,500; Joint filers with taxable income of over $114,650 to $174,700 |
30% |
28% |
| Single filers with taxable income of $28,400 to $68,800; Joint filers with taxable income of $56,800 to $114,650 |
27% |
25% |
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Individuals in the 10% and 15% tax brackets will not receive a tax cut. However, a greater portion of their income will be taxed at the 10% rate, as the income threshold for the 10% bracket increases to $7,000 for single filers and to $14,000 for joint filers (up from $6,000 and $12,000 respectively).
Reduced Capital Gains Tax Rate
For transactions effective May 6, 2003 or later, long-term capital gains are taxed at 15%, down from 20%. Investors in the 10% and 15% tax brackets will see a drop in the previous 10% capital gains rate to 5%. These cuts apply to investments owned for more than one year. Short-term capital gains continue to be taxed at the individual's marginal tax rate.2
Maximum Tax Rate for Dividend Income
Beginning in the 2003 tax year, top-tax-bracket shareholders will be taxed on dividend income at a maximum rate of 15%. Individuals in the 10% and 15% tax brackets will pay 5% tax on dividend income. Previously, dividend income was taxed at the individual's marginal tax rate.3
Increased Child Tax Credit
The new law immediately raises the tax credit to $1,000 from the previous $600 amount. Indications are that a $400 rebate per eligible child will be given to qualifying taxpayers during 2003. This advance payment will reduce the child tax credit amount claimed in 2003.4
Eased Marriage Penalty
Under the new law, the standard deduction for married couples is increased to $9,500—twice as much as the standard deduction for single filers. Additionally, married couples filing jointly now fall into the 15% tax bracket if their income doesn't exceed $56,800—this amount is twice that of single filers in that bracket.5
Relief for Small Business Owners
Small business owners are perhaps the greatest beneficiaries of the new tax law. In addition to the income tax rate cuts mentioned above, owners will now be able to deduct expenses of up to $100,000 on qualified property6 (up from $25,000). Additionally, first-year "bonus" depreciation increases to 50% for property purchased after May 5, 2003 and before January 1, 2005.
For more information about "taxing" situations, download our new brochure, The High Points of Lower Taxes, visit our Tax Center or contact us toll free at 1-800-MAINSTAY (1-800-624-6782).
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