"The only people who don't get much of anything are low-income singles who don't invest or own a businesses," said Mark Luscombe, principal tax analyst with CCH Inc., a Riverwoods, Ill.-based publisher of tax information.
The biggest winners: married couples with children, who benefit from marriage-penalty relief and hefty credits for having children under age 17; wealthy taxpayers, who save thousands through cuts in marginal tax rates; and investors, who reap the rewards of lower taxes on dividends and investment gains.
"To sum it up, if you are a rich, married person with a lot of investment income, you should be very happy," said Mark Garay, deputy director of tax policy for Deloitte & Touche in Washington, D.C.
One major caveat: Many of the tax breaks have sunset provisions that kick in at various dates. Unless Congress votes later to extend the life of the tax breaks -- or to make them permanent -- the savings included in the new tax cut bill would disappear.
The law provides new tax breaks for individuals in four categories:
MARGINAL TAX RATES: The federal government was taxing regular income at six marginal rates -- 10 percent, 15 percent, 27 percent, 30 percent, 35 percent and 38.6 percent. The new tax law reduces the top marginal rates to 25 percent, 28 percent, 33 percent and 35 percent, respectively. It also increases the amount of income subject to the 10 percent bracket by $1,000 for singles and $2,000 for married couples for the next two years, saving a single filer $50 annually and a married couple $100.
These changes benefit virtually anyone who pays federal taxes, but they help the richest the most, simply because wealthy filers have more income subject to tax.
For instance, a single filer with $15,000 in taxable income will save $50 a year, a single filer with $50,000 in taxable income will save $482, and a single filer earning $350,000 will save $7,091, said Brenda Schafer, manager of tax analysis and advice support at H&R Block Inc.
The changes, retroactive to the beginning of 2003, will spur a reduction in federal payroll withholding, increasing the amount taxpayers keep from each paycheck.
CHILD TAX CREDITS: Under the old law, parents with children under age 17 were entitled to a credit of up to $600 per child. (Credits reduce tax on a dollar-for-dollar basis, while deductions simply reduce the amount of income that's subject to tax.) The new law boosts this credit to $1,000 per eligible child.
The caveat: The credit phases out for single filers earning more than $75,000 a year and married couples earning more than $110,000. To figure how much of the credit taxpayers can claim, those earning more than these amounts should add all of their child tax credits together and then subtract $50 of the credit for each $1,000 in income earned over the threshold. Under the new law, a couple with two children and $130,000 in income can claim $1,000 from this credit.
MARRIAGE PENALTY RELIEF: Two-income couples have long complained that they often pay more tax because they're married than they would if they were single. The new law alleviates some of that "marriage penalty" by boosting the standard deduction for married couples to twice that of single filers and by widening the 15 percent tax bracket for married couples.
The combination of those two factors will save a married couple with $50,000 in income about $406, according to Schafer. That removes some, but not all, of the tax cost of marriage for two-income couples.
INVESTMENT TAX CUTS: There are two changes to the way investments are taxed. Capital gains rates will be cut to 15 percent for those who had been paying 20 percent, and to 5 percent for those who were paying 10 percent.
Dividend income, which was taxed at ordinary income-tax rates, is now subject to capital gains rates.
These changes drastically reduce the amount of tax paid by those with substantial investments in taxable accounts. For instance, people in the highest tax bracket will pay 15 percent on their dividend income rather than 35 percent. But it will have little immediate effect on those with few investments outside of tax-favored retirement plans, such as individual retirement accounts and 401(k)s.