<font color=green>"Tax Relief Reconciliation Act of 2001"...
Please consult your tax advisor(s) for details. Good luck everyone :).
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"Tax Relief Reconciliation Act of 2001"
tax.cch.com <---------Excellent details.
"For Many Taxpayers, a Check Will Be in the Mail"
washingtonpost.com
"Tax Cut May Have Short Run for Some"
washingtonpost.com
"Congress Passes $1.35 Trillion Tax Cut"
washingtonpost.com
"Hill Negotiators Reach Deal on Tax Cut"
washingtonpost.com
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Selected highlights + rearranged for emphasis & ease of reading.
>>> Tax Relief Reconciliation Act of 2001
ON THE RADAR SCREEN
Although not in the current tax bill, several other provisions look prom-ising targets for quick passage in follow-up legislation either this summer or fall:
• Capital gains reduction
• Revamped R&D Credit
• Bankruptcy Tax Reform
• Alternative Minimum Tax Relief
• More Small Business Tax Breaks
• Technical Corrections
Rate Reduction Schedule:
Calendar Yr 15% rate 28% rate 31% rate 36% rate 39.6% rate
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2001* refund credit 27% 30% 35% 38.6%
2002-2003 partial 10% 27% 30% 35% 38.6%
2004-2005 no change 26% 29% 34% 37.6%
2006 & later no change 25% 28% 33% 35%
*Effective July 1, 2001
Eliminating of Itemized Deduction/Personal Exemptions Limitation
Higher-bracket taxpayers also will receive a back-door tax cut through the gradual elimination of the overall limitation on itemized deductions and the phase-out for personal exemptions.
The overall limitation on itemized deductions will be reduced
... by 1/3 rd in 2006-2007,
... by 2/3 rd in 2008-2009, and
...completely eliminated starting in 2010.
The personal exemption phase out similarly will be reduced
... by 1/3 rd in 2006-2007,
... by 2/3 rd in 2008-2009, and
... completely eliminated starting in 2010.
Who wins?
Whether you make $1 million or $12,000 of income for 2001, you get:
... a $300 tax ben-efit from the new law in 2001
... $600 if you are married filing jointly,
... $500 if you are head of household.
Starting in July 2001, however, some taxpayers will receive more than others:
• Those who remain in the 15 percent bracket will get no more of a benefit than taxpayers only earning $10,000 in income.
• Those in the top 39.6 percent bracket, however, eventually will receive a 4.6 percent tax cut each year on all their marginal income (no matter how high it rises because of inflation).
In addition to the $600 bonus, taxpayers at the top bracket will additionally receive approximately $7,782 resulting from
... part of their income being taxed at 25 per-cent instead of 28 percent,
... part at the 28 and 33 percent rates instead of the 31 and 36 percent.
Examples:
• Here are the tax savings from the rate tax cut for married couples filing jointly, projected for 2006 and thereafter:
• With $60,000 taxable income, the annual tax savings will be $701.
• With $100,000 taxable income, the annual tax savings will be $2,740.
• With $200,000 taxable income, the annual tax savings will be $7,901.
• With $300,000 taxable income, the annual tax savings will be $10,676.<<<
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>>> Tax Legislation Highlights
05/26/01
Tax Legislation Passes Congress
A House/Senate Conference committee reached final agreement on the House and Senate versions of tax legislation, labeled it the Economic Growth and Tax Relief Reconciliation Act of 2001 (HR 1836), and sent it on for quick approval votes in the House (240-154) and Senate (58-33) on May 26, 2001.
The legislation now goes to President Bush for his promised signature.
The conference agreement followed fairly closely the Senate-passed bill, but included a number of significant changes.
The bill reflects an attempt to reach a bipartisan compromise, putting various tax proposals within the budget framework that calls for $1.35 trillion in tax cuts over 11 years.
The bill reflects compromises on rate reduction, estate tax repeal, marriage penalty relief, education incentives, child tax credit increase, pension reform, and alternative minimum tax relief.
The 28, 31, 36 and 39.6 marginal tax rate brackets would gradually reduce until they reach 25, 28, 33 and 35 percent in 2006, a reduction of three percentage points for the lower brackets and 4.6 percentage points for the highest bracket.
Also new to the final bill is a reduction in these marginal rates by half a percentage point in 2001.
Additional economic stimulus portions of the bill, effective in 2001, are
...a new 10 percent bracket, which in 2001 will be handled in the form of a credit to taxpayers with a check issued by the government of up to $300 for individual taxpayers and $600 for joint filers.
Also in 2001, the child tax credit increases to $600.
... The child tax credit would subsequently phase up to $1,000 and include a refundable component.
The unified estate and gift tax system
... would be abandoned with the estate tax scheduled to be repealed in 2010 and
... the gift tax preserved with a top tax rate equal to the top marginal income tax rate, 35 percent.
Carryover basis would be introduced with step-up in basis for
... up to $3 million transferred to a spouse and
... up to $1.3 million for all transfers.
In the interim,
... the top estate and gift tax rate would gradually decrease to 45 percent, and
... the estate tax effective exemption amount would increase to $1 million in 2002 and gradually reach $3.5 million in 2009.
The gift tax
... effective exemption amount would increase to $1 million in 2002 and stay at that level.
Marriage penalty relief
...would include a doubling of the standard deduction for joint filers as compared to single filers and
... elimination of the marriage penalty in the 15 percent bracket,
... but the start of implementation would be delayed until 2005.
The earned income credit rules
... are also adjusted to help reduce the marriage penalty for lower income taxpayers.
Education incentives included in the bill
... range from raising the contribution limits on Education IRAs to $2,000 and increasing the income limits for Education IRAs to allowing tax-free use of the funds for elementary and secondary education as well as higher education.
Distributions from qualified tuition plans
... would be tax free, and
... colleges and universities would be permitted to set up tuition plans.
The bill also includes an above the line deduction for higher education expenses that sunsets after 2005.
The pension reform provisions include
... an increase in IRA limits to $5,000 and
... 401(k) limits to $15,000.
Also included are credits to encourage
... lower income taxpayers to make contributions and
... small business to set up retirement plans.
The nonrefundable credit for pension and IRA contributions would sunset after 2006.
Limited AMT relief is included in the bill,
... increasing the exemption amount for married couples filing a joint return by $4,000 and
........ for other taxpayers by $2,000.
... The provision sunsets after 2004.
Added to the bill from the Senate bill are provisions to
... expand the dependent care credit,
... expand the adoption credit, and
... create an employer-provided child care credit.
The tax cuts in the bill would generally sunset after December 31, 2010, in order to overcome objections in the Senate under the Byrd Rule that would remove provisions that would result in long-term increases in the budget deficit.
Unless another Congress acts to extend these provisions, everything done is this bill expires in 2011, restoring, for example, the estate tax after a one-year repeal.<<<
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Selected highlights + rearranged for ease of reading.
>>> Congress Passes $1.35 Trillion Tax Cut
By Glenn Kessler and Juliet Eilperin
Washington Post Staff Writers
Sunday, May 27, 2001; Page A01
The key provisions of the bill include:
• Reduction in top income rates.
The rate cuts start taking effect on July 1, which means taxpayers may see an increase in their take-home pay in a little over a month.
Besides the reduction in the top rate,
... by 2006 the bill will also lower the 36 percent rate to 33 percent,
... the 31 percent rate to 28 percent, and
... the 28 percent rate to 25 percent.
... The 15 percent rate, paid by about three-quarters of taxpayers, will remain unchanged.
• Creation of a new 10 percent bracket.
Retroactive to the beginning of the year, the rate will drop from 15 percent to 10 percent on the first
... $6,000 of taxable income for singles,
... $10,000 for heads of household and
... $12,000 for married couples.
This will result in savings of up to $300, $500 and $600, respectively.
• Increasing the $500 per child credit
... to $600 this year,
... $700 in 2005,
... $800 in 2009 and
... $1000 in 2010.
In a significant change,
... the child credit could also be claimed in part by workers making a little over $10,000 a year, even if they owe no income tax.
• Phaseout of the marriage penalty.
Starting in 2005, the bill will gradually begin to address the problem faced by about half of married couples, who end up paying more in taxes by filing a joint return than if they filed as singles.
• Repeal of the estate tax.
The bill will gradually raise the exemption and lower the rates for the estate tax, which affects about 2 percent of decedents.
The exemption,
... now on the first $675,000 of assets,
... will rise to $1 million in 2002 and
........ eventually to $3.5 million in 2009.
The top tax rate will drop from the current 55 percent to 45 percent by 2007.
The estate tax will be repealed in 2010, though gift taxes will remain in effect.
• Dozens of expanded tax breaks for education and retirement.
Contributions to individual retirement accounts,
... now limited to $2,000 a year,
... will be allowed to rise to $5,000 in 2008.
Contributions to 401(k) plans
... will be allowed to climb from $10,500 now to $15,000 in 2006.
As much as $5,000 in college tuition will become deductable, though the tax break will expire in 2005.
All of these provisions will EXPIRE at the end of 2010, an accounting maneuver that kept the cost below $1.35 trillion and allowed a deal to be struck.
Since Republicans had placed the tax bill on a fast-track process allowing limited debate, an obscure Senate rule would have required the bill to lapse at the end of fiscal 2011. But when negotiations were at an impasse, lawmakers realized that they could move up the date.
By terminating the tax cuts at the end of 2010, negotiators were able to avoid some tough decisions.
Since they could now distribute the same amount of money over nine years rather than 10 years, they effectively boosted the size of the tax cut while at the same time hiding its true cost.
The debates in both the House and Senate yesterday were short and largely rehashed old arguments, as lawmakers scrambled to pass the bill before noon so they could depart for the weeklong recess.
As the House Rules Committee met at 6:30 a.m. to set the parameters for the debate, Democratic caucus leader Martin Frost (Tex.) -- who usually delights in ribbing the panel's chairman, David Dreier (R-Calif.) -- asked just one question: Is it true the tax cuts outlined in the bill would end in 2010?
"I guess what it means is sometime in the next decade, Congress needs to address this," said Dreier, who was slightly rumpled after having spent the night on his office couch.
"This just seems like a peculiar way to legislate," Frost retorted. "People want some certainty in tax law."
© 2001 The Washington Post Company<<< |
