Income Tax rates

One of the major accomplishments of the new tax is its across-the-board reduction of tax rates. The new income tax brackets are:

10%
15%
25%
28%
33%
35%

This is a change from:

10%
15%
27%
30%
35%
38.6%

For Married filing Jointly, the tax rate schedule is:

If taxable income is:

Less than $14,000 - 10% of taxable income
Over $14,000 but less than $56,800 - $1,400 plus 15% over $14,000
Over $56,800 but less than $114,650 - $7,820 plus 25% over $56,800
Over $114,650 but less than $174,700 - $22,282.50 plus 28% over $114,650
Over $174,700 but less than $311,950 - $39,096.50 plus 33% over $174,700
Over $311,950 - $84,389 plus 35% over $311,950

Capital Gains

Under the new law, the maximum net capital gains tax rate immediately falls five percentage points from 20% to 15%. The current 10% capital gains rate for lower-income taxpayers falls to 5%. These new rates are effective for sales and exchanges (and payments received) on or after May 6, 2003 and through December 31, 2007. (with the 15-percent rate continuing unchanged in 2008 as well). The lower rates apply for both regular tax and Alternative Minimum Tax (AMT) purposes.

Dividends

Dividend income received by an individual shareholder from a domestic or qualified foreign corporation will be taxed at a maximum rate of 15% for most taxpayers. Lower income individuals will pay tax on their dividends at a new rate of 5%. This special tax treatment is temporary but it is also retroactive. The 15% rate is effective for dividends received in tax years beginning after 2002. It terminates on December 31. 2008.

Child tax credit

Previously, the child tax credit was scheduled to gradually rise to $1,000 by 2010. The new law immediately boosts the credit from $600 to $1,000. However, the increase is temporary as it is effective for 2003 and 2004. In 2005 the child tax credit is scheduled to fall to $700, but increases back to $1,000 by 2010.

Marriage penalty relief

Increase in the Standard deduction. For 2003 and 2004, the standard deduction for married couples filing a joint return has been increased from $7,950 to $9,500, which is exactly double the standard deduction for single taxpayers. However, relief is temporary for two years: 2003 and 2004. In 2005, the standard deduction for married taxpayers will revert to the level previously provided under law. In addition, this relief is only available to married couples that do not itemize.

Small business expensing

Business taxpayers could elect to immediately deduct under Code Sec. 179, rather than depreciation, up to $25,000 in qualified property placed in service for the year. JGTRRA boosts expensing to $100,000 and raises the phase-out threshold from $200,000 to $400,000. Property placed in service in tax years beginning in 2003, 2004 and 2005 will be eligible for the special treatment. For 2004 and 2005, the amounts will be adjusted for inflation. Businesses should consider the use of this deduction.