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| Overview
2003 Tax Relief Reconciliation Act |
| Tax
> 2003 Tax Relief Act |
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On May 28, 2003, President
Bush signed the Tax Relief Reconciliation Act of 2003
into law. A number of provisions of the new act are
actually accelerations of tax cuts included in the
Growth and Tax Relief Reconciliation Act of 2001.
Major provisions of the new bill include:
Accelerated 10-Percent Bracket Expansion:
The expansion of the 10-percent bracket, originally
scheduled for 2008, is accelerated to apply in 2003 and
2004. The endpoint of the 10-percent tax bracket
increases from $12,000 of taxable income to $14,000 for
married couples (and from $6,000 to $7,000 for single
taxpayers). This expansion benefits married taxpayers
with taxable income over $12,000 and single taxpayers
with taxable income over $6,000. This provision is
effective for 2003 and 2004 only after which the
reductions as provided in the 2001 act will resume.
Accelerated Reduction in Income Tax Rates:
The reductions in income tax rates in excess of
15-percent originally scheduled for 2004 and 2006 are
accelerated to 2003, resulting in new rates of 25%, 28%,
33% and 35% (from 27%, 30%, 35% and 38.6%). These
reductions benefit married couples with taxable income
greater than $47,450 and single taxpayers with taxable
income greater than $28,400.
Accelerated Reduction of Marriage Penalty:
The standard deduction for married couples is increased
to double the amount of the standard deduction for
single taxpayers in 2003 and 2004. The width of the
15-percent tax bracket for married couples is increased
to twice the width for single taxpayers in 2003 and
2004. These provisions were scheduled to phase-in over
the period between 2005 and 2009. These reductions
benefit married couples who claim the standard deduction
or who have taxable income greater than $47,450. This
provision is effective for 2003 and 2004 only after
which the reductions as provided in the 2001 act will
resume.
Accelerated Increase in Child Tax Credit:
The amount of the child tax credit is increased to
$1,000 in 2003 and 2004 (from $600), accelerating a
scheduled phase-in over the period between 2005 and
2010. In 2003, the increased amount of the child tax
credit will be paid in the form of an advance or rebate
beginning in July 2003. Taxpayers who claimed the Child
Tax Credit on their 2002 income tax returns and who
listed at least one dependent who will be under age 17
as of December 31, 2003 qualify for the rebate.
You don't have to take any action to get your check. The
IRS will determine who qualifies and mail advance
notices to all qualifying taxpayers. Shortly thereafter
the checks will be mailed. If you think you qualify for
the rebate all you have to do is wait to receive your
check.
The checks will be mailed beginning on July 25 and in
two subsequent mailings scheduled for August 1 and
August 8. Notices will be mailed in advance of payments
to advise taxpayers of their eligibility for this rebate
program. Approximately 25 million checks will be mailed
as part of this program. There will be no direct deposit
service available for rebate payments.
Taxpayers who filed their 2002 income tax returns after
the April 15 filing deadline are still eligible for the
rebate, but their rebates will not be included in the
first three mailings. Later mailings after August 8 will
be for qualifying taxpayers who filed after April 15.
If you do not receive a rebate but you are entitled to
claim the Child Tax Credit for 2003, you will have to
wait until you file your 2003 income tax return, then
claim the full amount of the $1,000 Child Tax Credit on
your tax return.
This provision is effective for 2003 and 2004 only after
which the reductions as provided in the 2001 act will
resume.
Reduction in Tax Rates on Dividends and Capital
Gains:
The maximum tax rate on dividends paid by corporations
to individuals and on individuals' capital gains is
reduced to 15% in 2003 through 2008. For taxpayers in
the 10% and 15% ordinary income tax rate brackets, the
rate on dividends and capital gains is reduced to 5% in
2003 through 2007, and to zero in 2008.
The new rates apply to capital gains realized on or
after May 6, 2003, and to dividends received in 2003 and
after. This provision reduces the double taxation of
corporate earnings.
Increase in Small Business Expense Election for
Equipment Purchases:
The amount that may be immediately deducted by small
businesses for the purchase of equipment is increased
from $25,000 to $100,000 beginning in 2003. The amount
of purchases qualifying for this immediate deduction
begins to phase out for small businesses with purchases
in excess of $400,000 (increased from $200,000). Both
parameters are indexed for inflation beginning in 2004.
These changes are effective for taxable years of 2003,
2004, and 2005. After 2005, this provision will revert
to prior law limits.
Increase in First-Year Bonus Depreciation:
The additional first-year bonus depreciation deduction
is increased from 30 percent to 50 percent for
investments acquired and placed in service after May 5,
2003 and before January 1, 2005. Taxpayers may also
continue to use 30 percent bonus depreciation for
property acquired and placed in service before January
1, 2005.
AMT Hold-Harmless Relief:
To ensure that the benefits from the acceleration
of the tax reductions are not reduced by the AMT, the
AMT exemption amount
is increased by $9,000 for married taxpayers and by
$4,500 for single
taxpayers in 2003 and 2004.
Bruce A
Rukkila, CPA, PC
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