Posted on 01/25/2004 10:33:30 PM PST by Cincinatus' Wife
WASHINGTON — Tax rates dropped last January, but most taxpayers have received only half of the cuts coming to them. That means many of them can expect bigger refunds or smaller tax bills when they figure their 2003 returns this year.
The Internal Revenue Service, banks and brokers have just started mailing packages of tax instructions and year-end financial statements. IRS officials say electronic filing, when combined with the direct deposit of a refund into a taxpayer's bank account, speeds refunds to taxpayers in as few as 10 days. The average time is about 14 days. Taxpayers filing the traditional way can wait up to six weeks for a refund.
The tax law enacted last May dropped tax rates across the board and removed some of the "marriage penalty" in the structure of marginal tax rates, which can cause married couples to pay more tax than they would as two singles.
Nearly everyone benefited from an expansion of the lowest 10 percent bracket to $7,000 for single people and $14,000 for married couples. The law also expanded the 15 percent bracket for married couples to twice that of singles. Married couples now pay the same amount of tax on income within the bottom two rates as two singles.
The law also lowered the higher marginal rates ahead of schedule and made the change effective Jan. 1, 2003. The higher rates are now 25 percent, 28 percent, 33 percent and 35 percent.
All of these changes were reflected in taxpayers' paychecks in July, when employers were instructed to change their withholding tables to reflect the new rates. Because the change started midyear, most taxpayers paid too much tax during the first half of 2003 and can expect to recoup that money through bigger refunds or smaller tax bills.
Tax advisers at Petz Enterprises, which runs the online tax preparation service TaxBrain, said they expect 10 million households of married couples whose incomes range from $47,000 to $65,000 to be among the biggest winners. The combination of new tax rates and tax cuts targeted at married couples will move many of those households from the 27 percent bracket down to the 15 percent bracket.
IRS officials say tax refunds have steadily risen, on average, for about 20 years. This year's jump may be higher because of lower tax rates, an increased child tax credit and other tax cuts.
Families that got an advance child tax credit payment last summer will need to reduce the credit they claim on their return by an equal amount. A family with one child who qualified for the entire $1,000 child tax credit probably received $400 last summer and can claim $600 when filing a 2003 tax return.
Married couples this year can claim a $9,500 standard deduction. Couples with itemized deductions less than that might be better off not itemizing them.
Investors may be able to take advantage of lower rates on dividends and capital gains but will spend more time on tax paperwork. Because the new capital gains rates took effect May 6, multiple rates apply, depending on when an asset was sold. Some dividends previously taxed at an investor's normal income tax rate also qualify for the same lower capital gains rates. The lower dividend rates, however, are for the entire year.
Taxpayers who routinely get large refunds may want to consider adjusting the amount withheld, converting the end-of-year refund into more take-home pay all year long. Taxpayers can request W-4 forms from their employers to make that change.
Taxpayers who might have changed their withholding in the middle of 2003 to adjust for the changed tax rates may have to readjust that withholding to avoid owing taxes at the end of 2004.
"Those people should consider filing a new W-4 in January to have their withholding increased and put on track," said Bob Scharin, a senior tax analyst at RIA, a New York tax information provider.
Employees who experienced major changes that might affect their taxes — those who got married or divorced, bought homes or had children — also might want to consider adjusting the amount automatically withheld from their paychecks.
Interesting...
Americans are Serfs.
Ronald Reagan's two terms gave us security and prosperity and a larger deficit but it didn't drive us under. But those on the Left, given an opening, most certainly would.
Americans are Serfs.
Meanwhile in Russia they have a 13% flat income tax.
Hey, Steve Forbes, along with the flat tax, was my choice, but I have to admit, as president, George W. Bush has met the challenge and started moving the country's thinking and our security back to a healthier place.
I guess I didn't.
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