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Tax Rates for 2004
Who should file for 2004
Rates ReductionsRate Changes. Individual taxpayers determine their federal income-tax liability by applying graduated tax rates to their taxable income for the year. The IRS’s regular tax rate schedules are divided into several ranges of income (“income brackets”), and the tax rate increases as income rises. Different income brackets apply to separate categories of taxpayers (single, head of household, married filing jointly and surviving spouses, and married filing separately). Before the new law, there were five regular tax rates: 15%, 28%, 31%, 36%, and 39.6%. The new law introduces a new 10% tax rate. The 10% rate will apply as follows:
After 2008, these income ceilings will be adjusted for inflation. The 15% rate bracket will begin at the end of the 10% bracket and end at the same level as under present law. Individual taxpayers will also benefit from the new 10% rate in 2001. Rather than incorporating the 10% rate into the 2001 tax rate schedules, the new law directs the Treasury to mail a “rebate” check to most individual taxpayers who filed a return for 2000, providing an immediate tax benefit. (For those who didn’t file for 2000 or had no or a small tax liability, an adjustment will be made on the 2001 return.) The “rebate” amounts will be up to $600 for joint filers, up to $500 for heads of households, and up to $300 for single filers and married persons filing separately. The remaining tax rates will also be reduced, starting July 1, 2001. By 2006, when the reduction is completed, the previous rates of 28%, 31%, 36%, and 39.6% will be 25%, 28%, 33%, and 35%, respectively. The schedule for these rate reductions is:
Itemized Deduction Reduction Repealed. Higher income taxpayers who itemize deductions on their federal tax returns must reduce their deductions if adjusted gross income (AGI) exceeds a certain inflation-adjusted threshold ($132,950 in 2001; $66,475 for married persons filing separately). The new law gradually repeals the itemized deduction reduction. The otherwise applicable reduction will be reduced by one third for 2006 and 2007, and by two thirds in 2008 and 2009. Effective for tax years beginning after 2009, the itemized deduction reduction will be repealed. Personal Exemption Phase out Repealed. Personal exemptions for a taxpayer, his or her spouse, and any dependents ($2,900 each for 2001) are reduced by 2% for each $2,500 (or portion thereof) by which AGI exceeds certain thresholds. (The $2,500 figure is $1,250 for a married person filing a separate return.) For 2001, the AGI thresholds are $132,950 for single individuals, $199,450 for joint filers, $166,200 for heads of households, and $99,725 for married persons filing separately. These thresholds are adjusted annually for inflation. Under the new law, the otherwise applicable exemption phase out will be reduced by one third in 2006 and 2007 and by two thirds in 2008 and 2009. After 2009, the personal exemption phase out will be totally repealed.
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