Summary of the 2001 Tax Act

This page will be revised as new information becomes available.

• Tax Rebates to be Issued
  • Beginning summer 2001, the US Treasury will send rebate checks of $300 for most individuals, $500 for most single parents, and $600 for most married couples.
  • The rebate will be based on your taxable income as reported on your 2000 income tax return. Thus, if your 2000 taxable income was $12,000 and you filed as married filing jointly, you should receive a rebate check for $600.
  • If you do not receive a rebate check, you may be eligible for a credit on your 2001 tax return. In some cases, even if you do receive a rebate you may still be eligible for a credit (if you receive less than a "full" rebate).
  • Since the rebates are based on income reported on your 2000 income tax return, if your 2000 taxable income was $12,000 and your 2001 taxable income is $0 you will not be required to pay back what would otherwise be considered an overpayment.
• Income Tax Rates to be Revised
  • The new rates will be phased- in beginning July 2001 and will be fully phased-in by 2006.
  • The Act created a new 10% rate (the bottom rate was previously 15%). This new rate will apply to the first $6,000 of taxable income for single people, and the first $12,000 for married couples filing jointly.
  • The following rate changes will be phased-in by 2006:
    • Top 39.6% rate drops to 35%
    • 36% rate drops to 33%
    • 31% rate drops to 28%
    • 28% rate drops to 25%
    • 15% rate remains
    • New 10% rate applies (see above)
• Child Tax Credit Increases over time.
  • The child tax credit will be $600 per child in 2001 (up from $500).
  • The credit reaches its maximum at $1,000 in 2010.
• The So-Called "Marriage Penalty" is Reduced or Eliminated
  • The standard deduction for married individuals will gradually increase until it is double that of single individuals.
  • The 15% tax bracket for married individuals will widen for married individuals so that it applies to double the income of single individuals.
  • Note that the top end of the new 10% rate for married individuals will be double that of single individuals.
  • The upper income limit for the earned income credit is gradually increased by $3,000 (by 2008).
• Estate Tax Burden Greatly Reduced
  • The estate tax will be repealed in 2010. Current law, though, would reinstate the tax in 2011.
  • The top estate tax rate will gradually drop from 55% to 45%.
  • The current $675,000 exemption for individuals will gradually increase to $3.5 million as follows:
    • $1 million in 2002
    • $1.5 million in 2004
    • $2 million in 2006
    • $3.5 million in 2009
• Revisions to Retirement Plans
  • Contribution limits for IRAs and Roth IRAs will be gradually increased from $2,000 to $5,000.
  • Contribution limits for 401(k) and similar plans will be gradually increased to $15,000 from $10,500.
  • Catch-up contribution provisions will be available for individuals age 50 and over beginning in 2002. This will increase the contribution limits by $500 in 2002 for qualifying individuals (the "catch-up" provision is greater in later years).
  • A partial income tax credit will be available for retirement contributions for lower income individuals. The phase-out range is rather low. For those who qualify, in addition to making potentially tax deductible contributions, a credit of as much as 50% of the contribution will be allowed.
• Tax Breaks for Education Revised
  • Higher education credits for tuition paid lowered from $5,000 to $2,000 for income levels between $130,000 and $160,000 and phases-out beginning at $160,000.
  • The current limitation on the deductibility of student-loan interest will be removed.
  • The current $500 contribution limit for an "education IRA" increases to $2,000.
  • A new deduction for college costs goes into effect for 2002 (up to $3,000) for certain individuals.
• Phase-outs for Personal Exemptions and Itemized Deductions
  • The phase-out rule for personal exemptions and itemized deductions will be gradually repealed starting in 2006 and fully phased in by 2010.

[ Home ] [ Up ] [ Next ]

Contact us.
See our legal disclaimer.
Copyright © 2000 Coston and McIsaac, CPAs
Last modified: April 11, 2005

38 Rodick Street
Bar Harbor, ME 04609
Telephone: 1-207-288-9458
Fax: 1-207-288-2234