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Personal Finance > Taxes
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Will taxes rise in 2005?
If current tax law remains unchanged, your tax bill might go up. But analysts say it's unlikely.
August 17, 2004: 2:51 PM EDT
By Jeanne Sahadi, CNN/Money senior writer

NEW YORK (CNN/Money) - As the presidential election year nears its 11th hour, taxes as much as terrorism will be a key issue on both George Bush's and John Kerry's agendas.

As the tax law stands now, your federal income tax burden may well be higher in 2005 than it will be this year.

That's because of slated reductions from 2004 levels in the child tax credit, relief from marriage penalties, the amount of income subject to the 10 percent tax bracket and the amount of income that's exempt from the alternative minimum tax.

Other than the AMT exemption, even at those new levels your tax burden in these areas will be less than it was before the 2001 Tax Relief Act was passed into law. But they may mean a bump-up in what you pay to Uncle Sam between this year and next.

Married couples with kids are likely to see the biggest change. A couple with two kids under 17 and an adjusted gross income of $50,000 would pay an additional $898, according to tax information publisher CCH, Inc. If their AGI is $100,000 and they take $15,000 in itemized deductions, their additional tab would be $1,288.

For couples with an AGI of $100,000 who would be subject to AMT, their federal tax bill would jump $2,495.

Unless, that is, Congress decides to extend the tax-relief provisions in question between now and April 2006 (when 2005 federal tax returns come due).

That's likely to happen, tax policy analysts say, since both presidential candidates have said they would support middle-class tax relief.

The debate is likely to be over how to pay for those extensions, said Chris Edwards, director of tax policy studies at the Cato Institute, and Leonard Burman, co-director of the Urban-Brookings Tax Policy Center. The central question: Can Congress come up with (and agree on) ways to compensate for the loss of revenue due to the extensions?

Here's a look at how the provisions are currently set to change come Jan. 1, 2005:

Child tax credit: In 2005, you will receive a $700 credit for each child, down from $1,000 in 2004.

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The credit is slated to go up to $800 in 2009, then back to $1,000 for 2010 before reverting back to the pre-2001 level of $500.

Marriage penalty relief: In two ways, married couples filing jointly may see an increase in their 2005 tax bill compared with that of 2004.

First, the standard deduction for joint filers, currently 200 percent of that for single filers, will only be 174 percent of that for single filers. That percentage is slated to increase gradually until it returns to 200 percent in 2009 and 2010.

Second, the income subject to the 15 percent tax bracket for joint filers will fall to 180 percent of that of single filers, down from 200 percent this year. That percentage is also scheduled to rise gradually after that until it returns to 200 percent in 2008 through 2010.

By 2011, the standard deduction for joint filers and the upper threshold of the 15 percent tax bracket will revert to pre-2001 levels: 167 percent that of single filers.

10 percent tax bracket: In 2005, the first $6,000 of income for single filers ($12,000 for joint filers) will be subject to the 10 percent tax bracket. That's down from the 2004 levels of $7,000 and $14,000, respectively.

Those levels will remain in effect until 2008, when they return to $7,000 and $14,000.

The 10 percent tax bracket, which did not exist before 2001, will expire come 2011.

Alternative minimum tax (AMT): The AMT is a parallel tax system that was originally designed to prevent wealthy taxpayers from escaping having to pay their fair share of taxes.

The AMT system does not allow for a number of the deductions permissible under the regular tax system, such as state, local and property taxes.

To determine if you're subject to AMT, you must calculate your tax burden under the regular federal tax system and under the AMT system. If your burden is found to be greater under the AMT system, that's what you owe Uncle Sam.

There is an amount of income that's considered exempt under the AMT system and it was increased to $40,250 for single filers and $58,000 for married filers for 2003 and 2004. Come 2005, however, the exempted amounts will be reduced to their pre-2001 levels: $33,750 for single filers and $45,000 for joint filers.

Those levels are slated to stay in effect indefinitely.

As a result, the number of taxpayers who will have to pay the AMT will jump from 3 million in 2004 to 11.6 million in 2005, according to estimates by the Urban-Brookings Tax Policy Center. By 2010, more than 29 million taxpayers will be subject to AMT.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.