Tax bill will touch nearly everyone
Published 12:00 am Sunday, July 8, 2001
The &uot;tax bill&uot; will touch nearly everybody in America, but just how much depends on who you are.
The largest tax relief measure in 20 years was signed into law by President Bush on June 7 – a total of $1.35 trillion in tax cuts that sweep across a broad spectrum of age, income levels and special interests.
&uot;Eventually the tax bill will affect everybody, but not to the same extent,&uot; said Bill Rush Mosby, a tax advisor and certified public accountant with Silas M. Simmons & Company of Natchez.
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&uot;Some of the tax changes are retroactive, and others will phase in over a 10-year period,&uot; Mosby said. &uot;Some people will begin to see less taken out of their paychecks right away.&uot;
Furthermore, many will receive rebate checks. Those checks, ranging from up to $300 for eligible single filers to up to $600 for eligible taxpayers filing jointly, will be in the mail within weeks.
&uot;Not everyone will get a check,&uot; Mosby said. Eligible taxpayers will be those who already have filed returns for 2000, not anyone who has filed for an extension, for example.
Other possible criteria for the rebate eligibility includes income level and number of dependents. For example, a married couple with two children and an income of $30,550 could receive the $600 check.
An estimated 95 million checks will be mailed, beginning in about two weeks and continuing through the summer and into the fall. The last checks should get to recipients by Oct. 1.
Checks are being mailed on a schedule based on the last two digits of a person’s Social Security number, Mosby said.
The rebate checks are in response to a change in the law from a tax rate of 15 percent to 10 percent on the first $6,000 of taxable income for single filers and first $10,000 for heads of household and $12,000 for married couples filing jointly.
Politics has loomed large in the final bill that emerged after many weeks of compromise between the two major parties in Congress. The tax cut &uot;has happened but it hasn’t happened,&uot; Mosby said. &uot;That’s what made the tax bill float. It’s kind of a smoke and mirrors thing; they gave it but they didn’t.&uot;
An example: Beginning in 2002, a taxpayer can deduct up to $3,000 for higher education costs. The law provides the deduction for a single filer whose income is $65,000 or less and for a married couple filing jointly whose income is $130,000 or less. The deduction, which is per household and not per student, increases to $4,000 in 2004 but after 2005 this part of the law is repealed.
Still, the tax law offers some interesting, helpful benefits, Mosby said. Families with young children should study carefully the options they have for putting away the college education nest egg, for example.
Rita Winn, a pharmacist and co-owner of Winn Pharmacy of Natchez with her husband, Michael Winn, also a pharmacist, liked the sound of the new rules governing education IRAs.
The Winns have three children, ages 11, 12 and 16. &uot;College tuition has really risen since I was at Alcorn and Xavier University,&uot; Rita Winn said. &uot;My children still have a way to go, and I will most definitely look into the new law. It sounds like a great advantage to parents, and we need every break we can get.&uot;
The new rules raise contribution limits to education IRAs from $500 to $2,000 annually. More taxpayers will qualify for this option, also, as the income phase-out range for married taxpayers filing jointly will increase to begin at $190,000 and end at $220,000.
Other child-related changes in the law include an increase in the child credit deduction, Mosby said. &uot;It doubles by 2010, but it goes up by only $100 – $500 to $600 – from next year until 2004.&uot;
The new law is favorable for most taxpayers, Mosby said, but the benefits are scattered like crumbs throughout the tax code. &uot;You have to read carefully and find the things that fit your needs.&uot;
For those with retirement accounts, an increase in IRA contributions phases in between 2002 and 2008, rising from the current $2,000 contribution limit to $5,000 annually.
Employee contribution limits to 401(k) and 403(b) plans also will increase gradually from the current maximum of $10,500 to $15,000 by 2006.
Changes will affect deductions for dependent care and employer-provided child care facilities. Other changes include benefits for those repaying government student loans. Estate tax rates will decrease.
Taxpayers now face a much more complex set of rules, Mosby said. Those who take advantage of the new law may reap benefits. &uot;But you will have to do some tax planning,&uot; he said.