Public Law 108-27, The Jobs and Growth Tax Relief Reconciliation Act of 2003, was signed by President Bush on May 28, 2003. Described below are the major changes made by the new law that affect tax years beginning in 2003. Be sure to take these changes into account when figuring any future estimated tax payments due for 2003.

• The 2003 Tax Rate Schedules have been revised to reflect the following changes.
  
  1. The tax rate brackets of 27%, 30%, 35%, and 38.6%, have been reduced to 25%, 28%, 33%, and 35%, respectively.
  2. The 15% rate bracket for married taxpayers filing jointly and qualifying widow(er)s has expanded to twice that of single filers.
  3. The maximum taxable income subject to the 10% tax rate has increased to $ 7,000 for single taxpayers and married taxpayers filing separately ($ 14,000 for married taxpayers filing jointly and qualifying widow(er)s).
     
• The basic standard deduction for married taxpayers filing jointly and qualifying widow(er)s has increased to $ 9,500 (twice that of single filers). The standard deduction for married taxpayers filing separately has increased to $ 4,750 (the same as that of single taxpayers).
  
• The maximum child tax credit has increased from $ 600 to $ 1,000 per child. Beginning on July 25, 2003, checks will be mailed to taxpayers who claimed the child tax credit for 2002. The checks are an advance payment of the increased portion of the child tax credit for 2003, up to a maximum of $ 400 per child, and will be based on 2002 tax return information using the number of qualifying children under age 17 as of December 31, 2003. No action is required by any taxpayer to receive an advance payment check. The checks will be mailed to qualifying taxpayers on the dates shown in the Mailing Schedule for Advance Child Tax Credit Payments . The advance payment reduces the amount of the child tax credit allowed for 2003. Any advance payment that is more than the child tax credit for 2003 does not have to be paid back
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• The alternative minimum tax exemption amount has increased to $ 40,250 for single taxpayers and taxpayers filing as head of household; $ 58,000 for married taxpayers filing jointly and qualifying widow(er)s; and $ 29,000 for married taxpayers filing separately.
  
• The maximum tax rate on net capital gain (i.e., net long-term capital gain reduced by any net short-term capital loss) has been reduced from 20% to 15% (and from 10% to 5% for taxpayers in the 10% and 15% tax rate brackets) for property sold or otherwise disposed of after May 5, 2003 (and installment sale payments received after that date). The reduced rate applies for both the regular tax and the alternative minimum tax. The higher rates that apply to unrecaptured section 1250 gain, collectibles gain, and section 1202 gain have not changed.
  
• The same 15% (or 5%) maximum tax rate that applies to net capital gain also applies to dividends paid by most domestic and foreign corporations after December 31, 2002. Certain dividends from regulated investment companies (such as mutual funds), real estate investment trusts, and certain foreign corporations do not qualify for the reduced rates. The 2003 Form 1099-DIV and 2003 Instructions for Form 1099-DIV will be reissued in June 2003 to add a box for the reporting of qualified dividends subject to the reduced rates.
  

Public Law 108-27, The Jobs and Growth Tax Relief Reconciliation Act of 2003, was signed by President Bush on May 28, 2003. Described below are the major changes made by the new law that affect tax years beginning in 2003. Be sure to take these changes into account when figuring any future estimated tax payments due for 2003.

All Businesses, Including Self-Employed

• There is a special first-year depreciation allowance of 50% for qualified property acquired after May 5, 2003 (except for property acquired under a binding written contract in effect before May 6, 2003). Instead of claiming the 50% allowance, taxpayers may elect to claim the 30% allowance or elect not to claim any special allowance. The depreciation limit for vehicles subject to the 50% allowance is increased by $ 7,650. The 2002 Instructions for Form 4562 will be reissued in August 2003 for use by fiscal year 2002-2003 filers to reflect the increase in the special allowance. -- 31-JUL-2003
  
• The limit on the section 179 expense deduction is increased to $ 100,000 for qualified property ($ 135,000 for qualified zone property, qualified renewal property, or qualified New York Liberty Zone property). This limit is reduced by the amount by which the cost of section 179 property placed in service during the year exceeds $ 400,000. Also, the definition of section 179 property has been expanded to include off-the-shelf computer software.

• The installment due date for 25% of any corporate estimated tax payment otherwise due in September 2003 has been changed to October 1, 2003. The due date for the remaining 75% of the September 2003 estimated tax payment has not changed.
  

Some of the tax cuts in the Jobs and Growth Tax Relief Reconciliation Act of 2003 will reach taxpayers without any action on their part. For example, the IRS will automatically figure the advance payments of the Child Tax Credit increase that will be sent starting July 25 to most taxpayers who claimed this credit on their 2002 returns. And employers are using new tax withholding tables, reflecting lower tax rates and a higher standard deduction for married couples.

But for self-employed persons and those who have significant income from capital gains or dividends, the way to get the tax benefits this year may be to adjust their remaining 2003 estimated tax payments, due Sept. 15, 2003, and Jan. 15, 2004.

When using the worksheets with Form 1040-ES or Publication 505, take these changes for individuals into account:

• A higher standard deduction for married persons: $ 9,500 for couples; $ 4,750 for those filing separate returns.
  
• Tax rate reductions: the 10% rate applies to the first $ 7,000 of taxable income for single persons, $ 14,000 for married persons filing jointly; the 15% rate for married couples covers up to $ 56,800 of taxable income; and all rates above 15% are lower. Use the new tax rate schedules to figure your 2003 tax.
  
• Lower tax rates for long-term capital gains on assets sold after May 5, 2003, and for qualified 2003 dividend income: 5% for those that would have been taxed at a regular rate of 10% or 15%; 15% for most items that would have been taxed at a higher rate. (But there are no changes in the special rates that apply to unrecaptured section 1250 gain, collectibles gain, or section 1202 gain.)
  
• A higher alternative minimum tax exemption amount: $ 40,250 for a single person or a head of household; $ 58,000 for married persons filing jointly and qualifying widow(er)s; and $ 29,000 for married persons filing separately.
  Business owners should also consider changes to the first-year depreciation allowance and the Section 179 expensing deduction.

You don’t have to wait until your 2003 return to benefit from the tax cuts. Act now to bring the tax you pay closer to the tax you owe.

Easy Ways to Pay

• Electronic Federal Tax Payment System — Make your estimated tax payments online or by phone through the Electronic Federal Tax Payment System. EFTPS is free, available 24/7 and you can set up your quarterly payments for the entire year in one visit. You can change or cancel your payment at any time. EFTPS sends you an electronic acknowledgement of your completed transactions and you can see 16 months of your EFTPS payment history. Visit the EFTPS Web site to enroll online or get more information. For a paper enrollment form call 1-800-555-4477 or 1-800-945-8400.
  
• Credit Card — Pay your estimated taxes by credit card. The credit card payment option is available through authorized private sector companies that offer both phone and Internet services. The companies charge a fee for the service. For information on credit card payment options including features, benefits and fees, visit www.irs.gov/efile and click on Electronic Payment Options.
  Related Items:

• Advance Child Tax Credit Payments
• New Withholding Tables
• New Tax Rate Schedules
• Tax Changes for Businesses
• Form 1040-ES, Estimated Tax for Individuals (PDF 49K)
• Pub. 505, Tax Withholding and Estimated Tax (PDF 367K)
• Electronic Federal Tax Payment System
• Credit Card Payments

Workers will be getting more money in their paychecks thanks to the Jobs and Growth Tax Relief Reconciliation Act of 2003. New withholding tables incorporate the lower tax rates for employers to use when figuring the federal income tax to withhold from their employees’ wages.

Employers should use these new tables as soon as they can work them into their payroll systems, but not later than July 1, 2003. By the third week of June, employers can expect to find in the mail a printed copy of the 64-page Publication 15-T containing all the tables.

In making tax rate changes retroactive to the beginning of 2003, Congress recognized that tax withholding has already occurred at the higher rates required under the prior law. The new law's Conference Report states that "taxpayers who have been overwithheld as a consequence of this (should) obtain a refund of this overwithholding through the normal process of filing an income tax return, and not through the payor." Therefore, employers and others that withhold taxes should not attempt to "correct" amounts withheld at the rates required under the law before they could implement the new withholding rates.

Employees may adjust their withholding to bring the tax paid closer to the tax owed, but they may not claim more allowances than they are entitled to, based on their expected exemptions, deductions and credits. To avoid an estimated tax penalty for not paying enough during the year, they may want to see how much their withholding drops before making further adjustments.

The new law extended the 10 percent rate to cover the first $ 7,000 of taxable income for single persons, $ 14,000 for married couples. It also lowered the tax rates above 15 percent to 25, 28, 33 and 35 percent. This is a drop of two percentage points for each rate except the top one, which went down 3.6 points.

The new law also raised the standard deduction for married couples to $ 9,500 and extended their 15 percent tax rate to $ 56,800 of taxable income. Each figure is double the number for single taxpayers. The changes reduce the “marriage penalty” – the difference between the tax couples pay and the amount they would have paid as two single persons.

Related Item: Pub. 15-T, New Withholding Tables (For Wages Paid Through December 2004) (PDF 324K)
For other information about the new tax law, see:

• Advance Payments – Child Tax Credit increase
  
• Estimated Tax Payments
  
• Tax Rate Schedules for 2003
  
• Changes for Individuals
  
• Changes for Businesses

• Advance Child Tax Credit Payments:
  • IR-2003-68 — Taxpayers to Receive Advance Child Tax Credit This Summer
  • IR-2003-90 — Advance Child Tax Credit Payments Begin July 25
  • IR-2003-98 — Taxpayers Can Track Advance Child Tax Credit Checks
  • FS-2003-13 — Advance Child Tax Credit Payments
  • Frequently Asked Questions about Advance Child Tax Credit Payments
  • Where's My Advance Child Tax Credit? — If you claimed the Child Tax Credit on your 2002 return, you can check on the status of your advance payment.
  • Mailing Schedule for Advance Payment Checks
  • State-by-State Distribution of the Accelerated Increase in Child Tax Credit
  • Scam Targets Potential Advance Payment Recipients — Offer to "Speed Up" Your Check Is a Rip-Off
    

Frequently Asked Questions
Frequently Asked Questions for Aliens and U.S. Citizens Living Abroad

New Law's Tax Cuts Mean Extra Cash Now

One good thing about the tax cuts in the new law is that most people won't have to wait long to start seeing the savings. Employers have generally lowered the amount of federal tax withheld from their workers’ paychecks, reflecting lower tax rates for most people and a larger standard deduction for married couples. The Treasury is mailing checks to most people who claimed the Child Tax Credit last year, as an advance payment of the credit’s increase. If you claimed this credit on your 2002 tax return, you may be eligible for up to $ 400 for each qualifying child. That’s the difference between the old maximum credit of $ 600 and the new amount of $ 1,000.

You do not have to do anything to get these benefits. Your employer adjusts your paycheck withholding based on the W-4 form you had on file. The IRS will figure if you’re entitled to any advance Child Tax Credit payment and have it sent straight to your mailbox – automatically! You don’t have to call, apply or fill out another form.

Some other changes aren’t so automatic, but could also mean extra money in your pocket. Lower tax rates for long-term capital gains and qualifying dividends may allow you to reduce your estimated tax payments for the rest of the year. An increase in the Alternative Minimum Tax exemption may insulate you from that computation. Business owners may claim larger first-year depreciation allowances and Section 179 expensing amounts.

Tax Information for Members of the U.S. Armed Forces

The tax laws provide some special benefits for active members of the U.S. Armed Forces, including those serving in combat zones. For federal tax purposes, the U.S. Armed Forces includes officers and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, the Army, Navy and Air Force. The Coast Guard is also included, but not the U.S. Merchant Marine or the American Red Cross. However, these and other support personnel may qualify for certain tax deadline extensions because of their service in a combat zone.

• Questions & Answers on Combat Zone Tax Provisions — Military Pay Exclusions, Deadline Extensions and Miscellaneous Provisions for Qualifying Taxpayers
  
• A Combat Zone E-mail Address for members of the Armed Forces or their families worldwide to alert the IRS that they are serving in a combat zone.
  

Other Items:

· IR-2003-63 — New Tax Scam Targets Families of Armed Forces Members

· Notice 2003-21 — Tax Relief for Those Involved in Operation Iraqi Freedom.

· IR-2003-43 — Tax Assistance for Military Families; IRS.gov Page for Armed Forces

· Fact Sheet 2003-11 — Information for Taxpayers Serving in the Armed Forces

· Tax Tip 2003-41 — Reservists, New Enlistees May Get Deferral for Back Taxes.

· News Release IR-2002-18 — Tax Relief for Troops in the Afghanistan Combat Zone.

· Notice 2002-17 — Tax Relief for Those Involved in Operation Enduring Freedom.

IR-2003-100, Aug. 15, 2003

WASHINGTON — The Internal Revenue Service announced tax relief for those hit by the power blackout in the Northeastern United States. The IRS will consider as timely any tax returns or payments due from today through next Friday, Aug. 22, if they are completed by Aug. 22, 2003. However, the law does not allow the agency to abate interest on any overdue taxes during this period.

While the IRS cannot extend the time for making employment and excise tax deposits, it will waive penalties on such deposits due during this period for affected taxpayers due to reasonable cause if the deposits are made by Aug. 22, 2003.

“We recognize that individuals and businesses will need time to recover after the power is restored, which is why we are granting this additional time,” said IRS Commissioner Mark W. Everson.

For the purposes of this tax relief, affected taxpayers include individuals and businesses located in the blackout area, and those whose tax records, including records needed for tax deposits, are located in the area of the power blackout.

To qualify for this relief, affected taxpayers should put “NORTHEAST BLACKOUT” in red ink at the top of the return relying on this relief. Individuals or businesses located in the blackout area – or taxpayers outside the area that were directly affected by the power blackout – should contact the IRS if they receive penalties for filing returns or paying taxes late.

The IRS will monitor this ongoing situation to determine if any additional relief is warranted.

The IRS toll-free number for general tax questions is 1-800-829-1040.