|
The
2003 Tax Act (Jobs and Growth Tax Relief Reconciliation Act of 2003 -
JGTRRA)
was signed into law by President Bush on May 28, 2003, followed more
recently
by the Working Families Tax Relief Act of 2004 (WFTRA), which was
signed
into law on October 4, 2004.
As
is typical of recent tax legislation, the 2003 and 2004 Tax Acts
offered
tax relief to individuals, but did so through a variety of complex
provisions
that included retroactive, temporary and phased-in/phased-out effective
dates. While some of these provisions may not apply to you, other
provisions will and you may want to revise your planning to take full
benefit
of those provisions.
Today's topic
is the reduction in individual income taxes. If you would like
additional
information on this topic, please call my office.
Accelerated Reduction
in Income Tax Rates
The
reductions in income tax rates in excess of 15% scheduled for 2004 and
2006 were accelerated to 2003, resulting in new
rates of 25%, 28%, 33% and 35% (from 27%,
30%, 35% and 38.6%). These reductions were retroactive
to January 1, 2003, and are
scheduled to remain in effect through 2010,
at which time they are subject to the sunset provision of the Economic
Growth Tax Relief Reconciliation Act of 2001, under which income tax
rates
revert to 15%, 28%, 31%, 36% and 39.6% after 2010.
|
Tax
Years
|
Lowest
Bracket
|
2nd
Bracket
|
3rd
Bracket
|
4th
Bracket
|
5th
Bracket
|
Highest
Bracket
|
|
2003 - 2010
|
10%
|
15%
|
25%
|
28%
|
33%
|
35%
|
|
2011 and later
|
No 10% bracket
|
15%
|
28%
|
31%
|
36%
|
39.6%
|
|
Planning
Note:
|
Consider using tax savings
to fund an IRA, 401(k) or other tax-favored plan. |
Accelerated 10%
Tax Bracket Expansion
The
expansion of the 10% bracket scheduled for 2008 was accelerated by the
2003 Tax Act to apply in 2003 and 2004.
The threshold for the 10% bracket increased from $12,000 of taxable
income
to $14,000 for married couples and from $6,000 to $7,000 for single
taxpayers.
The old, lower thresholds were scheduled to reappear in 2005.
Thanks
to WFTRA, however, the higher 10% tax
bracket
thresholds have been extended through 2010.
If the provisions of the Economic Growth Tax Relief Reconciliation Act
of 2001 sunset at the end of 2010, the 10% bracket will disappear and
the
lowest tax rate will be 15%.
Prior
to the 2003 Tax Act, tax bracket amounts, other than the 10% bracket,
were
adjusted annually for inflation. The 10% bracket is now also adjusted
for
inflation.
|
10%
Tax Bracket Thresholds
|
| Filing
Status |
2003
- 2010
|
2011
and later
|
| Married, Filing Jointly |
$14,000 ($15,100 in
2006)
|
No 10% bracket
|
| Single Taxpayers |
$7,000 ($7,550 in 2006)
|
No 10% bracket
|
|
Planning
Note:
|
Regardless of your personal
income tax bracket, the continued expansion of the 10% tax bracket will
benefit you since taxpayers also share in rate cuts in brackets lower
than
their own. For married couples, at least an additional $2,000
will
be taxed at 10% rather than the next higher 15%, resulting in a $100
tax
savings. Single taxpayers receive at least $50 in tax savings
from
the additional $1,000 taxed at 10% instead of 15%. Both figures
are
adjusted annually for inflation. |
|
