The tax cut approved this summer by Congress should probably be called the "Now You See It, Now You Don't" Act of 2003. Virtually every provision in the new law is subject to a confusing mishmash of sunset provisions.
Fortunately, the most significant money savers in the legislation-at least for now-are relatively simple. Leaving aside increased deductions and depreciation schedules for businesses (Tax Talk), the key changes involve marginal tax rates, child credits, the so-called marriage penalty and investment-related taxes. The biggest winners, says tax analyst Mark Luscombe of CCH Inc., a provider of tax and business information and software in Riverwoods, Illinois, are investors and married couples with children.
Lower marginal rates that were scheduled to go into effect in 2006 are implemented immediately. The 38.6 percent bracket drops to 35 percent, the 35 percent bracket to 33 percent, the 30 percent bracket to 28 percent, and the 27 percent bracket to 25 percent. Meanwhile, the two lowest-income brackets, 10 percent and 15 percent, have been widened.
The marriage penalty-in which a couple does not receive as high a standard deduction as two singles- is eliminated for the next two years. Married filers will get double the deduction of single filers. The 15 percent bracket has also been temporarily adjusted to make it twice as wide for couples as it is for singles.
Parents should be happy that child tax credits jump from $600 to $1,000 for each dependent at home under the age of 17. The credit, though, begins to phase out for couples making $110,000 and for singles earning more than $75,000.
Dividends, rather than being taxed as ordinary income, will be nicked by only 15 percent at the most. Long-term capital gains, meanwhile, drop from a current maximum rate of 20 percent to 15 percent.
All told, "this is one of those rare bills that doesn't have a lot of little, minor provisions that affect people," Luscombe says. "But the things that matter will really matter to a good number of taxpayers."
Scott Bernard Nelson is a financial writer at The Boston Globe.