President Bush's massive tax cut has been approved by both houses and is expected to be signed by the president during the first week of June. The nation's taxpayers will feel an immediate reverberation from the changes to the tax laws in the form of rebates from the IRS.
A portion of the new tax cut that represents a 10% tax rate on the first $6,000 of earned income (as opposed to the former 15% rate) is to be retroactive to January 1, 2001. In an effort to spur the economy and to make all taxpayers aware of the work Congress is doing on their behalf, the Treasury Department will be ordered to issue tax rebate checks representing taxes that have been overpaid for 2001.
Single taxpayers can look for a rebate of up to $300, single parents will receive up to $500, and married couples will receive a maximum of $600.
The Treasury Department has acquired new software for the job and is ready to begin issuing checks as soon as President Bush signs the tax bill. Treasury Department officials have indicated that it may take as long as four months for the checks to be issued, and some may take until the end of the year.
For the official word on tax rebates, with all the details as to who will receive a rebate and when, see the http://www.accountingweb.com/item/49155">IRS News Release 2001-57.
Something for Everyone
In addition to the immediate lowering of the tax rate on the first $6,000 of earned income, the new tax bill includes other provisions that will affect many of the nation's taxpayers. These features will be phased in over a period of ten years.
It is important to note that the changes brought about by this new tax act are set to expire in 2011, and Congressional approval will be required to continue the changes past that time.
- The maximum that can be contributed to an IRA will rise from $2,000 to $5,000 per year. The maximum will be indexed for inflation thereafter.
- The maximum that can be contributed to 401(k), 403(b), and 457 retirement plans offered by employers will be increased from $10,500 to $15,000. The maximum will be indexed for inflation thereafter.
- Taxpayers age 50 and over will be allowed to make additional contributions to their IRA ($500 next year and $1,000 each year thereafter).
- Taxpayers age 50 and over will be allowed to make additional contributions to 401(k) and similar employer-sponsored plans of $1,000 next year, $2,000 in 2003, $3,000 in 2004, $4,000 in 2005, and $5,000 in 2006 and subsequent years.
- The federal estate tax will be gradually reduced, and the tax will be repealed in 2010.
- The standard deduction for married couples will be increased gradually until it is double the standard deduction for single taxpayers.
- The bill includes a deduction for college tuition costs.