Mark your tax calendar

• By Milt x_Zall
• Sep 21, 2001

Economic Growth and Tax Relief Reconciliation Act of 2001

The new tax law presents a confusing array of phase-in and phase-out dates for various provisions. Some provisions don't begin for several years; others begin soon but end abruptly.

Dennis Filangeri, a certified financial planner based in San Diego, cautions taxpayers to pay careful attention to these dates. Below are some of the more important phase-in and phase-out periods arranged by date.

2001

A new 10 percent tax bracket is created, retroactive to Jan. 1, 2001. This is not reflected in withholding, but rather in refund checks that are being mailed out. A higher exemption amount for the alternative minimum tax (AMT) also goes into effect.

The child tax credit rises from $500 to $600.

July 1, 2001

The 28 percent, 31 percent, 36 percent and 39.6 percent income tax brackets decline by 1 percentage point each, which is reflected in a slight decline in your withholding. The 15 percent bracket remains the same.

2002

The top estate and gift tax rate drops from 55 percent to 50 percent, and the exemption amount rises to $1 million (from $675,000).

Maximum deductible contributions rise to $3,000 for individual retirement accounts (IRAs) and $11,000 for 401(k), 403(b) and Simplified Employee Pension plans.

Several education provisions begin, including an above-the-line deduction for qualified higher education expenses, the raising of contribution limits for education IRAs from $500 to $2,000 a year and the exemption from income tax of the earnings distributed from college savings plans used for qualified education expenses.

2003

The top estate and gift tax rate drops to 49 percent. The exemption amount remains at $1 million. The maximum deductible contributions rise to $12,000 for retirement plans.

2004

The 28 percent, 31 percent, 36 percent and 39.6 percent income tax brackets decline another 1 percentage point.

The top estate and gift tax rate drops to 48 percent, and the estate tax exemption amount rises to $1.5 million. However, the exemption amount for lifetime gifts permanently remains at $1 million, unadjusted for inflation.

Maximum deductible retirement plan contributions rise to $13,000.

2005

The child tax credit rises to $700. Marriage penalty relief begins and is phased in through 2009 (higher-income married couples who itemize won't get relief). The increased exemption amount for the AMT is rescinded.

The top estate and gift tax rate drops to 47 percent, and the estate tax exemption amount remains at $1.5 million.

Maximum deductible contributions rise to $14,000 for retirement plans.

2006

The 28 percent, 31 percent and 36 percent tax brackets decline another 1 percentage point. The 39.6 percent bracket falls 2.5 percentage points from its 2004 rate, down to 35 percent. The limitation on itemized deductions taken by higher-income taxpayers is reduced by one-third and is fully eliminated starting in 2010.

The top estate and gift tax rate drops to 46 percent, and the estate tax exemption amount rises to $2 million.

Maximum deductible contributions for retirement plans rise to $15,000, and thereafter will be adjusted for inflation in $500 increments. Maximum IRA contributions rise to $4,000.

The above-the-line deduction for qualified higher education expenses ends.

2007

The top estate and gift tax rate drops to 45 percent, and the estate tax exemption amount remains at $2 million.

2008

Maximum IRA contributions rise to $5,000 and remain there for subsequent years.

2009

The 10 percent tax bracket will start to be adjusted annually for inflation.

The estate tax exemption amount rises to $3.5 million.

The child tax credit rises to $800.

2010

The federal estate tax is fully repealed. In its place begins what is essentially a capital gains tax on property when the heirs sell the property, though up to $3.4 million of that property could be sheltered from the new tax. However, the $1 million limit remains on lifetime gifts. Any excess is taxed at the top individual tax rate in place at that time.

The child tax credit rises to $1,000.

2011

The Economic Growth and Tax Relief Reconciliation Act of 2001 expires. For example, the estate tax and income tax rates would revert to their old rates, unless Congress extends or otherwise modifies the act between now and then.

Zall, Bureaucratus columnist and a retired federal employee, is a freelance writer based in Silver Spring, Md. He specializes in taxes, investing, business and government workplace issues. He is a certified internal auditor and a registered investment adviser. He can be reached at [email protected].