Thursday, May 22, 2003

A story released today by the Associated Press reports that low-income singles without kids are left out of the tax relief bill just passed by Congress.

The $330 billion tax cut will provide bigger paychecks for some workers, breaks for married couples and parents and investment opportunities for businesses. It also may make filing tax returns next year more complicated.

More than half the benefits are directed to workers and families and are retroactive to Jan. 1. They should start seeing the impact by July. "Without doing anything, people will see more money in each paycheck," said Don Weigandt, a financial planner with the J.P. Morgan Private Bank.

Robert Greenstein, executive director of the Center on Budget and Policy Priorities, said 36 percent of households will see no tax benefit, particularly low-income, single taxpayers with no children. "There's nothing here that affects you," he said.

Income tax rates will fall 2 percentage points for middle-income workers and 3.6 percentage points for those in the highest bracket. Those in the lowest brackets — at 10 percent and 15 percent marginal rates — will not see their income tax rates change.

As CBS News Correspondent Joie Chen reports, numbers crunchers say a family of four with an annual income of $63,000 can expect to see their taxes cut $1,000.

While a single person with no kids earning $41,000 a year would reap only a $200 cut, Chen reports.

Those paying the new marginal tax rates will see additional money in their paychecks during the second half of the year as companies make up for taxes overpaid in the first half. For example, an employee in the 27 percent bracket will see his top income tax rate fall to 25 percent, but for the next six months, only 23 percent will be withheld.

Next year, the withholdings will jump back up. "That will be kind of a rude shock for people," said Tom Ochsenschlager, tax partner at Grant Thornton LLP.

Parents who qualified for a child tax credit last year will see a windfall later this summer. Most parents will get a check from the Internal Revenue Service worth $400 per child, an advance refund to reflect an increase in the child tax credit beginning Jan. 1.

Parents will not have to apply to get the refund. Couples on the high and low end of the income spectrum will not see a full $400 per child refund. The Center for Budget and Policy Priorities calculates that nearly 30 percent of married couples who qualified for the child credit last year — most make between $10,000 and $30,000 — will not see a refund. On the other end of the income spectrum, the benefit starts to phase out for married couples who make more than $110,000.

For this year and next, married couples' standard deduction will rise to twice that of single taxpayers. And the 15 percent bracket will widen for married couples filing jointly. As a result, some couples will pay less of the "marriage penalty" — a structure in the tax code that causes married couples to pay more tax than two single individuals.

Two provisions will give small businesses an opportunity to recoup equipment purchases and other investments this year, encouraging businesses to expand and entrepreneurs to start new ventures.

The items allow small businesses to write off $100,000 in investments this year. All businesses could depreciate half their assets this year, recouping their money faster. For example, Luscombe said, a small business that spends $150,000 on new equipment this year can write off $100,000 immediately and recoup half of the remaining expense through depreciation this year. As a result, a business can immediately write off as an expense at least $125,000 of its equipment purchases.

Investors will see the tax rates they pay on dividend income and capital gains fall to a top rate of 15 percent through 2008. Low-income taxpayers will pay 5 percent now through 2007, and nothing in 2008. Investors currently pay taxes on dividends at the same rates as ordinary income, as high as 38.6 percent, and capital gains held for more than one year are taxed at 20 percent. In 2009, tax rates on dividends and capital gains revert back to current levels.

Tax experts said expiration dates on some tax breaks, and the introduction of a new tax rate on dividends paid to stockholders, will complicate filling out tax returns next year.

"Different tax rates and different baskets of income, the result, inevitably, is tax complexity for the individual," said Leslie B. Samuels, former assistant Treasury secretary at Cleary Gottlieb Steen and Hamilton. "The tax bill is good for the economy of tax advisers."