Tax Relief Act of 2003

The Jobs and Growth Tax Relief Reconciliation Act of 2003 was signed into law on May 28, 2003. The law provides approximately $330 billion of tax cuts over the next ten years, plus $20 billion of aid to states.

This summary will assist you in becoming familiar with the law. Please contact us for details on provisions that concern you or for assistance in tax planning to minimize your taxes under the new rules. Call us at (407) 228-0560 or email us at Consultants@lfharris.com.

Tax Rates
  • Retroactive to January 1, 2003, rates in the top four brackets decrease by 2% or more. This is an acceleration of changes originally scheduled by the Tax Act of 2001 to take place in 2004 and 2006.

    Old Rates 38.6% 35% 30% 27% 15% 10%
    Old Rates 35% 33% 28% 25% 15% 10%

  • Rates in the 10% and 15% brackets do not change. However, the upper end of the 10% bracket increases from $6,000 to $7,000 for single filers and from $12,000 to $14,000 for joint filers. This change only applies for the years 2003 and 2004.
  • The law provides some relief from the alternative minimum tax, which hits an increasing number of middle-income taxpayers each year. The exemption amount increases from $35,750 to $40,250 for single taxpayers, and from $49,000 to $58,000 for married couples. This increase is effective for only 2003 and 2004.
Marriage Penalty
  • The new law provides some relief from the marriage penalty. The marriage penalty is a scenario in which a married couple pays higher taxes than they would pay if they were filing as singles with the same inclome
  • The law increases the 15% tax bracket and the standard deduction for married coupled filing jointly to twice that of singles. This marriage penalty relief is effective only for the years 2003 and 2004.
Child Credit
  • The law immediately increases the child tax credit from $600 to $1,000 per child under age 17. Under prior laws, the credit was slowly gearing up to reach the $1000 level in 2010.
Dividend and Capital Gains
  • One of the biggest changes in the new law reduces the tax that investors will pay on most dividends and long-term capital gains. The reductions apply to any dividends received any time in 2003 and to long-term capital gains realized on or after May 6, 2003.
  • Taxpayers in the 10% to 15% ordinary income brackets will pay 5% through 2007 and 0% in 2008. Taxpayers in the top four tax brackets will pay 15% tax on most dividend income received through 2008.
  • The new rates of 15%, 5%, and 0% also apply to most long-term capital gains. Tax payers in the top four tax brackets will pay 15%, which is 5% less than the previous 20%. For those in the two lower tax brackets, the rate frops from the previous 10% to 5% through 2007, and to 0% in 2008.
  • In 2009, these new rates on dividends and capital gains expire unless extended by Congress.
  • The prior law's 18% and 8% rates for five year capital gains are effectively repealed until 2009 when they once again go into effect.
Business Investment
  • The new law contains two provisions intended to boost the economy by encouraging business spending. For the years 2003 through 2005, small businesses are able to take an immediate write-off for up to $100,000 of equipment purchases each year. The previous limit on this expensing option was $25,000. This benefit begins to phase out when total purchases in any year exceeds $400,000. The prior phase out threshold was $200,000.
  • The law also increases and extends the bonus depreciation that was introduced in the 2002 tax legislation. Businesses can now claim a first-year bonus depreciation of 50% of the cost of most new equipment purchased after May 5, 2003 and before January 1, 2005. The previous law allowed 30% bonus depreciation, which can still be taken for new business equipment purchased between September 11, 2001, and May 6, 2003. (A business may also elect to continue to use the 30% rate instead of the 50% rate).
This summarizes the major changes in the Tax Relief Act of 2003. The law is far-reaching and affects the majority of taxpayers in some way. It can also be complicated, with various effective dates, expiration dates, limitations and exceptions. For details and assistance, please contact our office at (407) 228-0560 or email us at Consultants@lfharris.com.