UCP: The New Tax Law

According to the Committee on Ways and Means, the new law:

ESTATE TAX

Repeals the estate tax in 2010.
Prior to repeal, reduces top rate from 55% to 45% and increases unified credit exemption amount from $675,000 to $3.5 million.
Expands the availability of the current law death tax exclusion for conservation easements.

INDIVIDUAL INCOME TAX RATES

Provides a new 10% rate for first $6,000 of taxable income for singles, $10,000 for single parents and $12,000 for married couples in 2001 through a lump-sum refund of up to $300 for single taxpayers, up to $500 for single parents, and up to $600 for married taxpayers.
Lowers the top income tax rate from 39.6% to 35% and lowers other tax rates to create a new 6 bracket rate structure of: 10%, 15%, 25%, 28%, 33%, and 35%.
Repeals the personal exemption phase-out (PEP) and limit on itemized deductions over a 5 year period but does not start until 2006.

MARRIAGE PENALTY RELIEF

Increases the standard deduction for married couples to twice the standard deduction for singles. The increase is phased in over 5 years beginning in 2005.
Increases the size of the 15% bracket for married couples to twice the size of the 15% bracket for singles. The increase is phased in over 4 years but does not start until 2005.

CHILD CREDIT EXPANSION

Doubles the child credit from $500 to $1,000. This increase is phased in over 10 years. It starts in 2001.
Makes child credit available to more low-income families by allowing more families to claim the credit - even if they have no income tax liability.

PENSION REFORM

Increases Individual Retirement Account (IRA) contributions from $2,000 to $5,000.
Increases 401(k) and other tax-deferred contribution limits from $10,500 to $15,000.
Provides "catch-up" contributions for people age 50 and older.
Provides numerous other pension plan benefits.

ALTERNATIVE MINIMUM TAX

Temporarily increases the exemption amount by $2,000 for single individuals and $4,000 for couples.

EDUCATION INCENTIVES

Increases the annual contribution limits to education savings accounts from $500 to $2,000. It also allows tax-free withdrawals for qualified K-12 public and private education expenses.
Provides a temporary above-the-line deduction for qualified higher education expenses.
Allows tax-free distributions from Qualified Tuition Plans and permits private institutions to offer such plans.
Extends exclusion for employer-provided educational assistance and extends the exclusion to graduate level courses.

ADOPTION TAX CREDIT

Makes the tax credit for the adoptions of non-special needs child (the credit for special needs adoptions is already permanent) permanent.
Increases the credit from $6,000 to $10,000 for special needs adoptions and from $5,000 to $10,000 for non-special needs adoptions.
Eliminates the expense reporting requirement for special needs adoptions.
Increases the income level at which the credit begins to phase out from $75,000 to $150,000.

Of course, ALL of this is subject to the now famous phrase, SUNSET.

Here's the actual wording:

"IN GENERAL.-All provisions of, and amendments made by, this Act shall NOT apply- (1) to taxable, plan, or limitation years beginning after December 31, 2010, or (2) in the case of title V, to estates of decedents dying, gifts made, or generation skipping transfers, after December 31, 2010."

Steve@leimbergservices.com
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