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Summary of H.R. 2, the Jobs and Growth Tax Relief Reconciliation Act of 2003 TITLE I—ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS A. Accelerate the Increase in the Child Tax Credit The Act increases the child tax credit to $1,000 for taxable years 2003 and 2004. After 2004, the amount would revert back to current levels. The Act provides for an advance payment of the 2003 increase on the basis of a taxpayer's 2002 return, beginning in July 2003. Effective for taxable years beginning after December 31, 2002, and before January 1, 2005. B. Accelerate Marriage Penalty Relief Accelerate the Expansion of the 15-Percent Rate Bracket for Married Couples Filing Joint Returns The Act accelerates the increase of the size of the 15% rate bracket for joint returns to twice the width of the bracket for single returns for taxable years beginning in 2003 and 2004. After 2004, the applicable percentages would revert back to current law. Effective for taxable years beginning after December 31, 2002, and before January 1, 2005.
Standard Deduction Marriage Penalty Relief
The Act accelerates the increase in the standard deduction amount for joint returns to twice the amount for single returns in 2003 and 2004. After 2004, the applicable percentages would revert back to current law. Effective for taxable years beginning after December 31, 2002, and before January 1, 2005.
C. Accelerate Reductions in Individual Income Tax Rates
Ten-Percent Regular Income Tax Rate
The Act accelerates the increase in the taxable income levels for the 10% rate bracket scheduled for 2008 to be effective in 2003 and 2004. After 2004, the levels would revert back to current law. Thus, for 2003, the level would be $7,000 for single returns and $14,000 for joint returns. For 2004, these amounts would be adjusted for inflation. For taxable years beginning after 2004, these amounts would revert back to current law.
Effective for taxable years beginning after December 31, 2002, and before January 1, 2005.
Reduction of Other Regular Income Tax Rates
The Act accelerates the reduction in the regular income tax rates in excess of the 15% rate. Thus, for 2003 and thereafter, the regular income tax rates in excess of the 15% rate would be 25%, 28%, 33%, and 35%.
Alternative Minimum Tax Exemption Amounts
The Act increases the AMT exemption amount for joint returns and surviving spouses to $58,000, $40,250 for unmarried taxpayers, and $29,000 for married individuals filing a separate return for taxable years beginning in 2003 and 2004.
Effective for taxable years beginning after December 31, 2002, and before January 1, 2005.
C. Sunset of Title I
The Act subjects all of Title I's provisions to the sunset provision of §901 of EGTRRA. Thus, the affected provisions would terminate after 2010.
TITLE II—GROWTH INCENTIVES FOR BUSINESS
A. Special Depreciation Allowance for Certain Property
The Act provides an additional 50% bonus first-year depreciation for qualified property. Qualified property is defined similarly as that for the bonus first-year 30% depreciation with modifications to the time period for acquisition of the property. Generally, the property must be acquired after May 5, 2003, and before January 1, 2005. Property subject to a binding written contract for acquisition in effect before May 6, 2003 does not qualify. Property claimed for the 50% bonus is not eligible for the 30% bonus.
The Act increases by $7,650 the amount of depreciation deductions allowed with respect to certain automobiles. This amount is not indexed for inflation.
The Act also extends the placed in service date to January 1, 2005, for property eligible for the 30% bonus depreciation.
Effective for property placed in service after May 5, 2003.
B. Increase Section 179 Expensing
The Act increases the maximum dollar amount that may be deducted under §179 to $100,000 for property placed in service in taxable years beginning after 2002 and before 2006. The phase-out amount is also increased to $400,000. These amounts are to be indexed for inflation beginning after 2003. The Act includes off-the-shelf computer software as qualifying property for taxable years beginning after 2002 and before 2006. The Act also allows revocable elections.
Effective for taxable years beginning after December 31, 2002.
TITLE III—REDUCTION IN TAXES ON CAPITAL GAINS AND DIVIDENDS
A. Reduce Individual Capital Gain Rates
The Act lowers the tax rates on capital gains from 10% and 20% to 5% (zero in 2008) and 15% for both regular tax and alternative minimum tax purposes. The rates apply to capital assets held for more than one year. The Act also eliminates the 8% and 18% rates on qualified five-year property. The Act also amends the minimum tax preference item for sales of small business stock under §1202 from 28% to 7%.
Effective for taxable years ending on or after May 6, 2003, and beginning before January 1, 2009, with special rules for taxable years including May 6, 2003.
B. Dividend Tax Relief for Individuals
The Act taxes dividends received from domestic corporations and qualifying foreign corporations at capital gains rates. The Act treats such dividends as part of net capital gain. To be eligible dividends, the stock must be held by the shareholder for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date. Dividends received from a corporation that is tax exempt under §501 or §521 (farmers' cooperatives) for the year of distribution, or the preceding year, do not qualify. Also, dividends allowed as a deduction for mutual savings banks under §591 and employer securities under §404(k) do not qualify.
The Act defines a qualifying foreign corporation as any foreign corporation if the corporation is incorporated in a U.S. possession or eligible for benefits of a U.S. income tax treaty. A foreign corporation not qualifying under such definition could qualify with respect to dividends paid if the stock with respect to which such dividend is paid is readily tradable on an established U.S. securities market. A qualified foreign corporation will not include any foreign corporation for the taxable year in which the dividend was paid, or the preceding taxable year, which is a foreign personal holding company, foreign investment company or passive foreign investment company.
The Act treats a dividend as investment income for purposes of determining deductible investment interest only if the taxpayer elects to treat the dividend as not eligible for the capital gains rates.
The Act provides special rules to allow dividends paid by REITs and RICs to qualify for the capital gain rates.
The Act reduces the tax rate for the accumulated earnings tax and the personal holding company tax to 15%.
The Act repeals the collapsible corporation rules.
Effective for taxable years beginning after December 31, 2002.
C. Sunset of Title
The Act sunsets the provisions of Title III for taxable years beginning after December 31, 2008.
TITLE IV—TEMPORARY STATE FISCAL RELIEF
The Act provides relief to states by establishing a temporary fund to provide $10 billion divided among the states to be used for essential governmental services, and $10 billion for Medicaid.
Effective on May 28, 2003.
TITLE V—CORPORATE ESTIMATED TAX PAYMENTS FOR 2003
For corporate estimated tax payments due September 15, 2003, 25% of the required payment is not required to be paid before October 1, 2003.
Effective on May 28, 2003.
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