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 The increased exemption amount for the AMT is rescinded.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].