written by Jennifer Cochran

Jennifer Cochran head shot

We will discuss Bush Extenders, Tax Cuts and more at the September 25th Tax Seminar. Call today to rsvp.

The Bush tax cuts refer to tax changes in two major pieces of legislation in 2001 and 2003: the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). If these tax cut provisions are allowed to expire, it could mean an increase in taxes for every taxpayer.

EGTRRA and JGTRRA were both set to expire in 2010, but the Job Creation Act extended the legislation for two years. Starting in 2012 the laws revert back to the tax rates and limits set prior to the 2001 act. To get a better understanding of EGTRRA and JGTRRA the following is a recap of both.

Key elements of EGTRRA:

  • A lowering of individual income tax rates
  • Phase out of marriage penalty in 15% bracket
  • Increased the size of the 15% regular income tax rate bracket for a married couple filing a joint return to twice the size of the corresponding rate bracket for an unmarried individual.
  • Basic standard deduction for married taxpayers filing jointly increased to twice the amount for single taxpayers.
  • Elimination of the phase out of the personal exemption for specific AGI (Adjusted Gross Income) ranges.
  • Limitation on itemized deductions phase-out eliminated
  • A doubling of the child tax credit from $500 to $1,000

Key elements of JGTRRA:

  • Reduction of individual capital gains rates
  • Reduced the 10% and 20% rates on net capital gains to 5% and 15%, respectively
  • Capital gain treatment for dividend income, lowering the tax rate to 0-15%
  • Acceleration of the reduction on individual income tax rates
  • Acceleration of increase in the child tax credit
  • Acceleration of the expansion of the 15% rate bracket for married couples filing joint return
  • Additional first-year depreciation deduction equal to 50% of the adjusted basis of qualified property

Significant Tax Rate Increase
The most significant tax rate increase is scheduled for dividend income received by non-corporate shareholders. Currently, most dividends (“qualified”) are taxed at the same rates as capital gains income, ranging from as low as 0 percent to a top rate of 15 percent. Effective in 2013, dividend income will be taxed at ordinary income tax rates, rather than the more favorable capital gains tax rates. This could raise the tax rates on dividends to the low rate of 15% to the top rate of 39.6%.

We will continually monitor new legislation that will extend these tax breaks. We will post updates as they happen in additional articles on our blog.