Thursday, June 12, 2003
How to figure your 2003 income tax bracket under new law
A story released by the Scripps Howard News Service and published today in
the Albuquerque Tribune provides a guide to help taxpayers figure out what
their tax bracket will be for 2003, based on the new changes created by the
tax bill recently passed by Congress and signed into law by President Bush.
The story says that the tax cut that is likely to show up in paychecks soon makes it a priority to know your tax bracket.
The reason: It lets you figure how income tax rates, plus new 15 percent maximum rates for shareholder dividends and capital gains, can help you get the biggest bang for the bucks you get back - whether you're saving for that new house, your child's education, your retirement or a rainy-day fund.
Start by finding out what the new law does to your taxable income - the income that's left after all your personal exemptions, credits and deductions are subtracted.
Married couples - especially those with children - do best on this score and may even cut their federal tax bill to zero, says attorney-accountant Mark Luscombe with tax publisher CCH Inc., but singles and heads of households benefit, too.
Assuming your total income will be the same this year as in 2002, take out last year's tax return and your calculator to do the new math:
- Personal exemptions will stay the same at $3,050 apiece for each spouse and dependent, so multiply $3,050 by the number you can claim in 2003.
- Next is the increased standard deduction for married couples. The deduction will be double the total allowed for single taxpayers in 2003 and 2004, with joint filers getting a $9,500 standard deduction instead of $7,950 under the old law.
- Total your child tax credits, which jump from $600 a child to $1,000 this year for most families with youngsters under 17. (Congress is still fighting over speeding up a 2005 increase in the refundable child credit for working parents making $10,500 to $26,000. Also at stake is extending the full credit to couples making $110,000 or more, for whom the full child credit is phased out by family size. Working parents making less than $10,500 aren't eligible.)
Now add your exemptions, deductions and credits plus whatever other write-offs you can take this year (tax-deductible Individual Retirement Account contributions; dependent care credits and the like), subtract them from your total income and what's left is the taxable income on which to figure your new tax bracket:
- Single filers pay a 10 percent tax rate on the first $7,000 taxable income in 2003 and 2004, up from $6,000 before, while couples filing jointly will pay 10 percent on the first $14,000 taxable income instead of $12,000. But heads of households continue to pay the 10 percent rate on the first $10,000 income.
- Couples filing jointly will see their 15 percent bracket double that of single taxpayers this year and next, so that joint filers pay 15 percent on taxable income between $14,000 and $56,800 in 2003, a $10,350 increase. Singles owe 15 percent tax on taxable income between $7,001 and $28,400, with household heads paying 15 percent on taxable income between $10,001 and $38,050.
- The top tax brackets fall at least 2 percentage points Jan. 1, 2003, through 2010, so the 27 percent bracket becomes 25 percent, the 30 percent bracket 28 percent, the 35 percent bracket 33 percent, and the 38.6 percent bracket 35 percent. Based on 2003 tax brackets announced before the tax cut's enactment, CCH expects upper brackets to have:
- Single filers pay 25 percent income tax on taxable income of $28,401 to $68,000; 28 percent on taxable income of $68,801 to $143,500; 33 percent on taxable income of $143,501 to $331,950; and 35 percent on taxable income above $311,950.
- Household heads paying 25 percent on taxable income of $38,051 to $98,250; 28 percent on taxable income of $98,251 to $159,100; 33 percent on taxable income of $159,101 to $311,950, and 35 percent on income above $311,950.
- Couples filing jointly owing 25 percent on taxable income of $56,801 to $114,650; 28 percent on taxable income of $114,651 to $174,700; 33 percent on taxable income of $174,701 to $311,950; and 35 percent on taxable income above $311,950.
Tax brackets in 2004 and subsequent years will be adjusted annually for inflation.
