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JOBS AND GROWTH TAX RELIEF RECONCILATION ACT OF 2003

June 2003

To Our Clients and Friends:

NCNP has put together an overview of the “JOBS AND GROWTH TAX RELIEF RECONCILATION ACT OF 2003.”  While all attempts were made to ensure accuracy, this document a summary and we encourage you to review the detailed legislation for clarification.

 On May 28^th President Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003.  An overview of the major provisions of the act is detailed below. 

 ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS

 A. Accelerate the Increase in the Child Credit

Under the previous law, the child credit was scheduled to be $600 for 2003 and 2004.  The bill increases the amount of the child credit to $1,000 for 2003 and 2004.  After 2004, the amount of the credit reverts to $600.  For 2003, the increased amount of the child credit (up to $400) will be paid in advance, beginning in July 2003, based on the information contained in the taxpayer’s return for 2002.

The provision is effective for taxable years beginning after December 31, 2002, and before January 1, 2005.

 B. Accelerate Marriage Penalty Relief

1. Standard deduction marriage penalty relief

The basic standard deduction amount for married taxpayers filing a joint return is twice the basic standard deduction amount for single individuals for 2003 and 2004.  For taxable years beginning after 2004, the relationship between the standard deduction for joint filers and single filers reverts to pre-Jobs and Growth Tax Relief Reconciliation Act of 2003 law.

The provision is effective for taxable years beginning after December 31, 2002, and before January 1, 2005.

 2. Accelerate the expansion of the fifteen-percent rate bracket for married couples filing joint returns

The Jobs and Growth Tax Relief Reconciliation Act of 2003 increases the size of the 15-percent regular income tax rate bracket for married taxpayers filing joint returns to twice the width of the 15-percent regular income tax rate bracket for single returns for taxable years beginning in 2003 and 2004. For taxable years beginning after 2004, the rate brackets revert to present law.

The provision is 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 new law accelerates the increase in the taxable income levels of the 10-percent rate bracket so that the income levels currently scheduled for 2008 become effective in 2003 and 2004. Thus, for 2003, the taxable income level for the 10-percent regular income tax rate bracket for single individuals is increased from $6,000 to $7,000, and for married taxpayers filing joint returns from $12,000 to $14,000. For 2004, these amounts are indexed for inflation.  For taxable years beginning after December 31, 2004, the taxable income levels for the 10-percent rate bracket revert to the levels provided under previous law.

The provision is effective for taxable years beginning after December 31, 2002, and before January 1, 2005.

 Reduction of other regular income tax rates

The reductions in the regular income tax rates that are scheduled for 2004 and 2006 are accelerated.  Thus, for 2003 and thereafter, the regular income tax rates in excess of 15 percent are 25 percent, 28 percent, 33 percent, and 35 percent.  The provision is effective for taxable years beginning after December 31, 2002. The provision does not modify the application of the present-law sunset to the rate reductions as contained in the Economic Growth and Tax Relief Reconciliation Act of 2001.

 Alternative minimum tax exemption amounts

The alternative minimum tax exemption amounts are increased for married taxpayers filing joint returns and surviving spouses to $58,000, and for unmarried taxpayers to $40,250 for taxable years beginning in 2003 and 2004.

The provision is effective for taxable years beginning after December 31, 2002, and before January 1, 2005.

 GROWTH INCENTIVES FOR BUSINESS

 A. Special Depreciation Allowance for Certain Property

The new law provides an additional first-year depreciation deduction equal to 50 percent of the adjusted basis of qualified property.  Qualified property is defined in the same manner as for purposes of the 30-percent additional first-year depreciation deduction provided by the Job Creation and Workers Assistance Act of 2002, except that the applicable time period for acquisition (or self construction) of the property is modified.  In general, in order to qualify for the 50-percent additional depreciation deduction, the property must be acquired after May 5, 2003, and before January 1, 2005. Property does not qualify if there was a binding written contract for the acquisition in effect before May 6, 2003.  Property for which the 50-percent additional first-year depreciation deduction is claimed is not eligible for the 30-percent additional first-year depreciation deduction.

The provision is effective for taxable years ending after May 5, 2003.

 B. Increase Section 179 Expensing

The new law provides that the maximum dollar amount that may be deducted under section 179 is increased to $100,000 for property placed in service in taxable years beginning in 2003, 2004, and 2005.  In addition, for purposes of the phase-out of the deductible amount, the $200,000 amount is increased to $400,000 for property placed in service in taxable years beginning in 2003, 2004, and 2005. The dollar limitations are indexed annually for inflation for taxable years beginning after 2003 and before 2006.  The provision also includes off-the-shelf computer software placed in service in a taxable year beginning in 2003, 2004, or 2005 as qualifying property.  With respect to taxable years beginning in 2003, 2004, and 2005, the provision permits taxpayers to make or revoke expensing elections on amended returns without the consent of the Commissioner.

The provision is effective for taxable years beginning after December 31, 2002.

 III. REDUCTIONS IN TAXES ON CAPITAL GAINS AND DIVIDENDS

A. Reduce Individual Capital Gains Rates

The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduces the 10- and 20-percent rates on capital gains to five (zero, in 2008) and 15 percent, respectively.  These lower rates apply to both the regular tax and the alternative minimum tax.  The lower rates apply to assets held more than one year.

The provision applies to sales and exchanges (and payments received) on or after May 6, 2003, and before January 1, 2009.

 B. Dividend Tax Relief for Individuals

Dividends received by an individual shareholder from domestic and qualified foreign corporations generally are taxed at the same rates that apply to capital gains.  This treatment applies for purposes of both the regular tax and the alternative minimum tax. Thus, under the provision, dividends are taxed at rates of five (zero, in 2008) and 15 percent.

The provision applies to dividends received in taxable years beginning after 2002 and before 2009.

 IV. TEMPORARY STATE FISCAL RELIEF FUND

Relief to States will be provided 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 (FMAP).

The provision is effective on the date of enactment.

V. CORPORATE ESTIMATED TAXES

Twenty five percent of the corporate estimated tax payments due on September 15, 2003, are not required to be paid before October 1, 2003.

The provision is effective on the date of enactment.