Tax Law Changes
The Economic Growth and Tax Relief Reconciliation Act of 2001, is a tax relief Act signed by President Bush on June 7, 2001. It represents the largest tax cut in 20 years. Reading through the text of the Act is a good cure for insomnia, so I will save you the trouble. This article will highlight some of the changes that apply to most taxpayers.
- Income tax changes:
- A new 10% tax bracket was created. It will apply to single taxpayers with taxable income of $6,000, and to married taxpayers with taxable income of $12,000.
- The other regular income tax rates were reduced beginning July 1, 2001. The rates were reduced for calendar years 2001-2003 as follows:
- 28% reduced to 27%
- 31% reduced to 30%
- 36% reduced to 35%
- 39.6% reduced to 38.6%
The rates will be further reduced in 2004 and again in 2006.
- The Child tax credit was increased to $600 per child for years 2001-2004. The credit will continue to increase in increments so that by 2010 it will be $1000 per child
- The standard deduction for married couples filing joint returns will be increased in increments over the next eight years so that by 2009 it will be equal to the standard deduction for two single taxpayer returns.
- IRA changes:
- Annual limits on contributions to education IRAs was increased form $500 to $2000.
- Contribution limits were also increased for regular IRAs. The limits will be as follows: $3,000 for years 2002-2004; $4,000 for years 2005-2007; and $5,000 for 2008 and later. Individuals over 50 will be able to make additional catch-up contributions.
- Estate Tax Changes:
- The Federal Estate Tax (also referred to by some as the “death tax”) was changed such that the unified credit exemption amount will be increased in increments so that in 2002 it will be $1 million and by 2009 it will be $3.5 million. In 2010 it will be repealed altogether. This repeal is only effective for one year, however, so in 2011 it will be reinstated at the $1 million level. Obviously this presents challenges for estate planning attorneys. It has also been the source of many jokes regarding the incentives to die in 2010.
The Act includes many more changes and will affect most of us in some way. It is a good time to review your affairs with your tax professional and your estate planning attorney.