What it all means for families, married couples and investors. Plus: tax savings calculator. May 30, 2003: 1:51 PM EDT
By Leslie Haggin Geary, CNN/Money Staff Writer
New York (CNN/Money) -
After months of wrangling, Congress is set to deliver a big tax break to Americans, some $350 billion worth of tax cuts to be exact, including relief for investors, married couples and parents.
After passing both chambers of Congress, the bill must be signed into law by President Bush, which is expected in the coming days.
Like the tax package passed in 2001 (remember those refund checks?), this round of cuts would provide only temporary relief. All of the cuts phase out by 2011, and some well before then. Nevertheless, most taxpayers can expect to keep more of their earnings for at least a year or two.
Here's how it will affect you.
The most sweeping change expected is an immediate reduction of the so-called "marginal" tax brackets paid by all but the lowest earners. Put another way, singles whose adjusted gross income exceeds $28,400, and married couples who file jointly with an AGI of at least $56,800, will get a break.
The richest Americans -- that's both singles and married couples whose AGI tops $311,950 -- now pay tax rates up to 38.6 percent. That rate would be cut to 35 percent.
Those who currently fall under the 35 percent bracket (single filers with incomes over $143,500 and joint filers with incomes over $174,700) will have their tax rate trimmed to 33 percent.
Taxpayers in the 30 percent bracket will have their rate nipped to 28 percent. (That's singles with an AGI of $68,800 to $143,500 and married couples with an AGI of $114,650 to $174,700.)
And those in the 27 percent bracket will pay no more than 25 percent. (Again, this applies to singles with incomes from $28,400 to $68,800 and married couples filing joint returns with an AGI between $56,800 and $114,650.)
So, for example, a single taxpayer with an AGI of $30,000 would save $326 in taxes this year. A married couple with $50,000 in income would shave their tax bill by $333, according to analysis by CCH, the tax law publisher.
Cuts would remain in effect until 2011, when rates would rise again.
Meanwhile, lower-income earners in the 10 percent and 15 percent tax brackets won't get a cut. However, they do get some relief because more of their earnings would be taxed at the lowest 10 percent rate.
Relief for investors
No doubt you've heard a lot of buzz about dividend and capital taxes. The new package lowers both.
Married couple: $50,000 Filing jont return, two children under 17
* Taxable income computed after calculating personal exemptions and new, higher deduction for married couples.
Currently, investors who owe dividend taxes must pay their "marginal" tax rates, or as much as 38.6 percent.
But the tax package would freeze the dividend tax at 15 percent for anyone in the top four tax brackets. The cut would start this year and run through 2008. In 2009, the dividend tax would revert to "marginal" tax rates.
Those in the 10 percent or 15 percent brackets would pay 5 percent taxes on dividends, starting this year. In 2008, they'd pay nothing. In 2009, the tax owed on dividends would revert back to 10 percent and 15 percent.
Single filer: $50,000 income No kids, $3,000 in long-term gains
Meanwhile, the long-term capital gains tax rate would fall to 15 percent, down from 20 percent. For investors in the 10 percent and 15 percent bracket, the tax would drop to 5 percent, down from 10 percent. That could mean savings of roughly $416 for someone with $3,000 in long-term capital gains.
The new cuts would apply to investment transactions made on or after May 6, 2003 -- and, of course -- only to investments owned for one year or more. Short-term capital gains rates would remain the same -- that is, your regular income tax rate.
Bigger breaks for kids
Have a kid? Depending on your income, you can expect as much as $400 more from Uncle Sam.
CNNfn's Louise Schiavone reports on the tax cut compromise reached by the House and Senate.
That's because the tax package would immediately boost the child tax credit to $1,000, up from a current $600. The upshot? Some 24.4 million families would get a $400 rebate check for their kids sometime this summer, according to CCH.
But before you plan on spending that dough, be sure you qualify.
The child tax credit isn't as generous – and may not even be available – for those who "earn too much." In the eyes of Uncle Sam, that's singles with an AGI over $75,000 and married couples with an AGI exceeding $110,000.
If you do qualify for the full credit, be aware that it drops back to $700 in 2005 and $500 in 2011.
Leveling the playing field for married couples
If you're married you know all about the so-called marriage penalty. Basically, you pay more because you said, "I do." The tax package provides brief respite from this cold reality.
Starting this year, married couples filing a joint return would be able to earn up to $56,800 and remain in the 15 percent bracket. That's twice as much as what singles can currently earn and remain in this bracket. Currently, married couples whose AGI tops $47,450 are kicked out of the 15 percent range.
At the same time, the so-called standard deduction (taken by taxpayers who don't itemize deductions) would be raised for married couples to $9,500 so that it's worth twice as much as the $4,750 break single filers get.
Once again, the marriage penalty relief is short-lived and would expire in 2005.