Here are the major provisions affecting individuals in the package of tax cuts signed by President Bush last week. All the tax cuts are retroactive to January 1.
Income Tax Rates
Change: 38.6% bracket drops to 35%; 35% bracket drops to 33%; 30 % bracket drops to 28%; 27% bracket drops to 25%
Phase Out: As per the original 2001 Bush tax cut, these rates will run through December 31, 2010, at which point the higher Clinton-era income tax rates will return.
Expansion of 10% Bracket
Change: Previously started at $6,000 for individuals and $12,000 for married couples; will now start at $7,000 for individuals and $14,000 for married couples.
Phase Out: After December 31, 2010, this expansion will expire.
Change: Dividends, currently taxed at regular income tax rates, will be taxed at 15% for everyone except those in the 10% and 15% income-tax brackets, who will pay 5% through 2007, and 0% in 2008.
Phase Out: After 2008, dividends will be taxed at income tax rate again.
Capital Gains Tax
Change: Currently, most people pay a 20% capital gains tax on an asset held 1 to 5 years. Now they will pay 15%. People in the 10% and 15% income tax brackets, who have paid a 10% capital gains tax, will pay 5% through 2007, and 0% in 2008.
Phase Out: After 2008, 20% and 10% rates return.
Marriage Penalty Reduction
Change:The 15% bracket is made twice as large for married couples filing jointly so they pay same tax rate as unmarried couple with same taxable income.
Phase Out: After 2004, reverts to previous law.
Child Tax Credit
Change:Currently, parents receive a $600 per child tax credit. That begins to phase out at $75,000 in taxable income for a single head of household, and at $110,000 in taxable income for a couple filing jointly. Now, the credit will be $1,000.
Phase Out: After 2004, reverts to previous law, in which credit climbs from $700 in 2005 to $1,000 in 2010, then vanishes in 2011.