Summary of the 2003 Tax Act:

The Jobs and Growth Tax Relief Reconciliation Act of 2003

This page will be revised as new information becomes available.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 is much like the 2001 Act in that both make changes to the tax code which are limited in duration. However, the 2001 Act made changes that were spread out over 10 years and at the end of that ten years (on January 1, 2011), the provisions of the 2001 Act will automatically be repealed (the sunset provision). 

Many of the provisions of the 2003 Act are of much shorter duration, applying only to the years 2003 and 2004. The entire Act has a sunset provision so that none of the Act's changes apply to taxable years beginning after December 31, 2008. At that time the law reverts back to the provisions of the 2001 Act, which will still be subject to its December 31, 2010 sunset provision.

Significant changes to the tax code as a result of the 2003 Act are summarized below:

• Child Tax Credit Increase Accelerated
  • The 2001 Tax Act provided for an increase in the child tax credit  from $500 to $600 and scheduled increases in 2005 , 2009 and 2010 up to a 2010 maximum of $1,000 per child.
  • The 2003 act immediately increases the child tax credit to $1,000 per child with no further increases scheduled.
  • As part of the government's effort to accelerate this benefit, the amount of the increase will be paid to the taxpayer as soon as possible (but before October 1, 2003 if possible). This advance credit/rebate will be based on dependents claimed on the taxpayer's 2002 income tax return and the dependents' age as of December 31, 2003.
  • Since the rebates are based on your 2002 income tax return, if your 2002 child tax credit was $1,200 (two children) your advance credit/rebate will be $800.
  • The tax law indicates that you will have to reduce the allowable credit by the amount of the advance refund when filing your 2003 income tax return, but not below zero.
• Acceleration of 15% Tax Bracket Expansion for MFJ Returns
  • The 2001 act had provided for a broadening of the 15% bracket for married filing joint returns (that is, increasing its upper limit). This provision was to be phased in over time.
  • Under the 2003 act, the increase scheduled for 2005 will be available in 2003 and 2004.
• Acceleration of Standard Deduction Increase for MFJ Returns
  • The 2001 act had provided for an increase in the standard deduction for married filing joint returns. This provision was to be phased in over time.
  • Under the 2003 act, the increase scheduled for 2005 will be available in 2003 and 2004.
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• Acceleration of the Scheduled Expansion of the 10% Tax Bracket
  • The provisions of the 2001 Act relating to the upper limit of the 10% bracket are moved up so that more of an individual taxpayer's income is taxed at 10% sooner than was scheduled under the 2001 Act.
• Individual Income Tax Rate Revisions Accelerated
  • The 2001 Act had scheduled new rates to be phased-in through 2006.
  • The 2003 Act implements the planned 2006 rates immediately, so that for 2003:
    • The top 38.6% rate (39.6% prior to the 2001 Act) drops to 35%
    • 35% rate (36% prior to the 2001 Act) drops to 33%
    • 30% rate (31% prior to the 2001 Act) drops to 28%
    • 27% rate (28% prior to the 2001 Act) drops to 25%
    • 15% rate remains
    • 10% rate remains
  • After 2010, the rates will revert back to the pre-2001 Act level.
• Alternative Minimum Tax Relief
  • One of the complaints regarding the 2001 Act was that it did not do enough to provide relief from the Alternative Minimum Tax and, in fact, increased the likelihood of becoming subject to that tax. 
  • The 2003 Act increases the dollar level of the AMT exemption by an additional $9,000 for joint filers ($4,500 for other filing statuses).
  • This AMT relief applies only to 2003 and 2004.
• Additional Bonus Depreciation Option
  • The 2002 Act had provided a special 30% bonus depreciation deduction for certain property. The primary purpose of this was to provide incentives to businesses in the wake of the September 11, 2001 terrorist attacks.
  • The 2003 Act retains the special 30% bonus depreciation, but adds an alternative 50% bonus depreciation option.
  • It appears that the 50% bonus depreciation will need to be specifically elected. Currently, if a taxpayer does not wish to take advantage of the 30% bonus depreciation they must elect out.
  • The bonus depreciation options are mutually exclusive -- i.e. you will not be able to elect both the 30% and 50% bonus depreciation.
  • Automobiles subject to depreciation limits were allowed a higher limit if the 30% bonus depreciation were used. If using the 50% bonus depreciation, the taxpayer will be allowed $7,650 instead of $4,600 available under the 30% option.
  • This option is generally available for property that qualified for the 30% bonus under the 2002 Act, if it is acquired between May 6, 2003 and December 31, 2004 inclusive.
  • The 2002 Act included a sunset provision with respect to the 30% bonus depreciation. That sunset provision has been extended through the end of 2004.
• Significant Increase in the Section 179 Depreciation Allowance
  • The 2003 Act increases the dollar amount of Section 179 deduction from $25,000 to $100,000 for the years 2003 through 2005.
  • In addition, the dollar amount of qualifying property is increased from $200,000 to $400,000. (Previously if a company placed more than $200,000 of property in service in any given year, the section 179 election was phased out. The 2003 Act increases the phase-out range by an additional $200,000). 
• Revised (reduced) Long-Term Capital Gains Tax Rates
  • The maximum capital gains tax rate for taxpayers in the 10% or 15% tax bracket was 10% after the 2001 act. This rate will be reduced to 5% effective May 6 and to 0% effective January 1, 2008.
  • For taxpayers in higher tax brackets, the maximum long-term capital gains tax rate was 20% prior to the 2003 act. The act provides a new 15% maximum.
• Tax Brake for Dividend Income for Individual Taxpayers
  • In general, dividends will be taxed as net capital gain. Effectively this means that qualifying dividends will be taxed at the taxpayers' maximum long-term capital gains tax rate.
  • There are some holding period requirements and certain dividends which will be excluded.
  • We are expecting this provision to be fairly complicated and there are a number of exclusions and limitations that need further study.
• Fiscal Relief for States
  • Although the provisions relating to additional aid to the several states does not directly impact our clients, it seems that the intent of Congress is to avoid the mad scramble by the states to "de-couple" from federal tax law that we saw after the 2001 and 2002 Acts.
• Limited Corporate Tax Relief
  • Corporations will receive only limited relief as a result of the 2003 Act, mainly related to the increase in the section 179 expense and the new 50% bonus depreciation.
  • Congress did provide for a two week reprieve on the September 15, 2003 estimated tax payment. That payment will be due on October 1, 2003. If there was a significant purpose or benefit from doing this, it escapes us.

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