Job and Growth Tax Relief Reconciliation Act of 2003

On May 28, 2003, President Bush signed into law the "Job and Growth Tax Relief Reconciliation Act of 2003 (H.R. 2)." It provides approximately $350 billion in tax relief making it the third largest tax cut in U.S. history.

Some of the major highlights of the new tax law are: 

• Lower individual marginal tax rates

• Expansion of the 10% bracket

• Lower taxes paid on both capital gains and stock dividends

• Increase in the child tax credit from $600 to $1000

• Marriage penalty relief

• Alternative minimum tax relief

• Quadrupling the amount small businesses can elect to expense under IRC Section 179 for the purchase of "qualified business property"

• Increase in the first year "bonus" depreciation businesses can take for assets acquired after May 5, 2003 from 30% to 50%

• Postponement of the due date for pay third quarter 2003 estimated corporate taxes from September 15, 2003 to October 1, 2003

Lower Individual Marginal Tax Rates  

Expansion of the 10% Tax Bracket

Income levels for the 10% tax bracket are increased to $7,000 for single taxpayers and to $14,000 for joint filers for tax year 2003. In 2004, these income levels will be indexed for inflation. This relief is temporary. The old thresholds of $6,000 and $12,000 will reappear in tax year 2005.

Capital Gains Rates

The tax rate on capital gains drops from 20% to 15% for all taxpayers except those in the lowest brackets (10% and 15% brackets). The new capital gain rates apply to transactions occurring on or after May 6, 2003, and remains in effect only through December 31, 2008.

Taxpayers in the lower brackets of 10% and 15% will pay 5% on any capital gains (previously rate was 10%). The new capital gain rates for these lower brackets apply to transactions occurring on or after May 6, 2003, and remains in effect only through December 31, 2007. In 2008, taxpayers in the 10% and 15% brackets will NOT be taxed on their capital gains.

In 2009, ALL capital gains rates are scheduled to revert back to 20% and 10%.

Stock Dividends

Stock dividends, which had been taxed at the same rate as ordinary income, will be taxed at 15% for most taxpayers effective January 1, 2003. This rate remains in effect until December 31, 2008.

Lower income taxpayers will pay taxes on dividends at 5% effective January 1, 2003 through December 31, 2007. In 2008, lower income taxpayers will NOT pay tax on dividends.

However, it is important to note that not all corporate distributions are entitled to tax-reduced dividend treatment. Certain types of dividends are specifically excluded from the definition of "qualified dividend income" for purposes of the new law. The exclusion applies to:

• Dividends paid from a corporation exempt from tax under IRC Sections 501 and 521

• Amounts that would be deductible under IRC Section 591 (i.e., dividends paid on deposits in a mutual savings bank, credit union, savings and loan, etc.)

• Any dividend described in IRC Section 404(k)

• Dividends paid under IRC Section 246(c) that fail to meet the revised holding period

• The extent that the taxpayer is under a payment obligations under IRC Section 246(c)

Increase in the Child Tax Credit

The child tax credit has been increased from $600 to $1000 for tax years 2003 and 2004. In 2005, the child tax credit is scheduled to fall back to $700, but will gradually rise to $1,000 by 2010 under the Economic Growth and Tax Relief Reconciliation Act of 2001.

Beginning July 25, 2003, the IRS will send advance refund checks (up to $400 per qualifying child) to taxpayers based on their 2002 income tax returns. Taxpayers who do not receive a check or who receive less than $400 per qualifying child can take the credit on their 2003 income tax return if they qualify at that time.

Marriage Penalty Relief

The new tax law immediately raises the standard deduction for married couples filing jointly to twice the standard deduction for single taxpayers for tax year 2003 and 2004. In 2005 the standard deduction for married couples falls to 174% of the standard deduction for single taxpayers but doubles again in 2009. Included in marriage penalty relief is also a doubling of the income range in the 15% tax bracket for couples filing joint returns.

Standard deduction for a SINGLE person in tax year 2003 is $4,750

Standard deduction for a couple MARRIED FILING JOINTLY is now $9,500 (previously under old law it was $7,950)

Standard deduction for a person MARRIED FILING SEPARATELY will be the same as a SINGLE person.

Alternative Minimum Tax Relief

Business Tax Break - Increased Small Business Expensing (IRC Section 179)

The new law quadruples the amount of "qualified property" that a business can annually expense under Internal Revenue Code Section 179 from $25,000 to $100,000 for tax years 2003, 2004, and 2005. The phase-out threshold increases from $200,000 to $400,000. Furthermore, the definition of "qualifying property" now includes off-the-shelf computer software. 

Business Tax Break - Bonus Depreciation

Last year, under the Job Creation and Worker Assistance Act of 2002, businesses were given a 30% depreciation bonus for assets acquired between September 11, 2001 and September 10, 2004. The new law boosts the bonus significantly to 50% for assets acquired on or after May 6, 2003, and before January 1, 2005. This "bonus" is in addition to regular first-year depreciation. Taxpayer can choose to use either the bonus 30% depreciation or the bonus 50% depreciation for qualifying property. Taxpayers may also elect not to use any of the bonus depreciation allowances. A special rule applies to the bonus depreciation for the purchase of a "passenger vehicle."

Passenger vehicles that have an UNLOADED gross vehicle weight of 6,000 pounds or less may be able to take advantage of the bonus 50% depreciation allowance if:

1. The vehicle is purchased NEW on or after May 6, 2003, and

2. It must be placed in service during tax year 2003, and

3. It must be used more than 50% for business purposes.

The FIRST year bonus depreciation limitation under IRC §280F (luxury auto rules) is INCREASED to a maximum of $7,650.

Example: A passenger vehicle with an unloaded gross vehicle weight of 6,000 pounds or less is purchased new on or after May 6, 2003 and placed in service during year 2003. The maximum allowed depreciation deduction is $10,710 ($7,650 bonus depreciation allowance and $3,060 regular depreciation). This amount is reduced for vehicles used less than 100% for business purposes.

NOTE: A "sports utility vehicle (SUV)" or other vehicle that has a LOADED gross vehicle weight GREATER than 6,000 pounds still qualifies for the 50% bonus depreciation allowance, but is NOT subject to the IRC §280F depreciation limitation. This means that these vehicles may have a much larger deduction (Depreciation + Section 179 expense).

Corporate Estimated Tax Payments