Miscellaneous Provisions

Calendar-year corporations are required to make quarterly estimated tax payments of income tax on April 15, June 15, September 15, and December 15. The Act modifies the timing of September 15 corporate estimated tax installment payments as follows:

September 15, 2001: 100% of the payment deferred until October 1, 2001
September 15, 2002: no change
September 15, 2003: no change
September 15, 2004: 20% of the payment deferred until October 1, 2004

Example: Calendar-Year Corporation

A calendar-year corporation normally makes its third estimated tax payment of the tax year on September 15. If the estimated tax for the third quarter of 2004 is $200, the taxpayer will pay $160 by September 15, 2004, and an additional $40 by October 1, 2004.

For corporations with fiscal years ending:

In September, the legislation affects fourth quarter payments for fiscal years 2001 and 2004.
In May, the legislation affects first quarter payments for fiscal years 2002 and 2005.
In March, the legislation affects second quarter payments for fiscal years 2002 and 2005.

Changes to Tax Withholding Provisions

The Act includes a number of measures bringing certain statutory provisions regarding tax withholding rates into conformity with the individual tax rates as they are adjusted downward over the phase-in period. For example, the rate of backup withholding that a payor must deduct and withhold on behalf of certain payees has been established at a statutory rate of 31%. The Act amends the statute to require payors to recompute the rate of backup withholding, based on the "fourth lowest rate of tax," in:

2001, when the rate of 31% is reduced to 30.5%
2002, when the rate is reduced to 30%
2004, when the rate is reduced to 29%
2006, when the rate eventually is reduced to 28%

Other withholding rate changes affected by these conforming provisions include withholding on supplemental wage payments made by employers and certain gambling winnings. For payors making these payments, adjustments to the withholding rates are required to reduce the current statutory rate of 28% to the "third lowest rate of tax" or:

27.5% for 2001
27% for 2002-2003
26% for 2004-2005
25% for 2006 and later

Similarly, the amounts of tax withheld under a voluntary withholding agreement on certain federal payments and on unemployment benefits must be reduced to reflect the lower individual rates of tax.

Effective for amounts paid after the 60^th day after the date of enactment.

KPMG Observation

With these changes to the withholding rates, payors must make changes to their payment systems to reflect the appropriate rates of withholding. Moreover, banks, financial institutions, and others payors required by law to present payees with written materials concerning the rate of backup withholding must modify any printed material to reflect the appropriate withholding rate.

Other Provisions

The Act:

Expands the authority to postpone certain tax-related deadlines in the case of Presidentially declared disasters
Excludes from income restitution payments made to victims (or their heirs) of Nazi Germany or other World War II Axis regimes