Provisions Affecting Individuals

Marginal Tax Rate Reductions

The Act accelerates the phase-in of certain marginal tax rate reductions that were enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

The rate tables below reflect the accelerated tax rate reductions, the expansion of the 10% tax bracket, and the modification to the 15% tax bracket for married individuals filing joint returns.

2003: Under Prior Law - Married Filing Jointly

Taxable Income

  

Over

Up to

Marginal
Rate

Tax at Top
of Bracket

$0

$12,000

10%

$1,200.00

$12,000

$47,450

15%

$6,517.50

$47,450

$114,650

27%

$24,661.50

$114,650

$174,700

30%

$42,676.50

$174,700

$311,950

35%

$90,714.00

$311,950

  

38.6%

  

2003: Under the Act - Married Filing Jointly
Taxable Income

  

Over

Up To

Marginal
Rate

Tax at Top
of Bracket

$0

$14,000

10%

$1,400.00

$14,000

$56,800

15%

$7,820.00

$56,800

$114,650

25%

$22,282.50

$114,650

$174,700

28%

$39,096.50

$174,700

$311,950

33%

$84,389.00

$311,950

  

35%

  


The following tables show the tax saved at various levels of taxable income:

Tax Savings 2003: Married Filing Jointly

Taxable Income

Prior Law

Under the Act

Savings

$25,000

3,150.00

3,050.00

$100

$50,000

7,206.00

6,800.00

$406

$75,000

13,956.00

12,370.00

$1,586

$100,000

20,706.00

18,620.00

$2,086

$125,000

27,766.50

25,180.50

$2,586

$150,000

35,266.50

32,180.50

$3,086

$200,000

51,531.50

47,445.50

$4,086

Tax Savings 2003: Unmarried Individuals

Taxable Income

Prior Law

Under the Act

Savings

$25,000

3,450

3,400

$50

$50,000

9,792

9,310

$482

$75,000

16,728

15,746

$982

$100,000

24,228

22,746

$1,482

$125,000

31,728

29,746

$1,982

$150,000

39,553

37,071

$2,482

$200,000

57,053

53,571

$3,482



10% Tax Bracket

The Act increases the levels of taxable income subject to the 10% individual tax rate, beginning in 2003.

Years Single Taxpayers and Married Filing Separately Heads of Household Married Individuals Filing Jointly

Prior Law (2003)

$6,000

$10,000

$12,000

Under the Act

2003-2004

$7,000

$10,000

$14,000

2005-2007

$6,000

$10,000

$12,000

2008-2010

$7,000

$10,000

$14,000

2011 and later

$0

$0

$0



The tax bracket for heads of household does not change. The taxable income levels for the 10% tax bracket for taxpayers other than heads of household are adjusted annually for inflation in 2004, 2009, and 2010.

15% Tax Bracket

Generally, the 15% income tax bracket ends at the same level as under prior law. However, as part of marriage penalty relief, the upper limit of the 15% bracket for married individuals filing jointly is increased beginning in 2003 to twice that for single taxpayers. For discussion, see Marriage Penalty Relief.

Other Tax Rate Reductions for Individuals

The prior-law rates of 27%, 30%, 35%, and 38.6% are reduced to 25%, 28%, 33%, and 35%, respectively, for years beginning in 2003. The tax bracket thresholds for the new rates are the same as under prior law.

Years Rates

Prior Law (2003)

27%

30%

35%

38.6%

Under the Act

2003-2010

25%

28%

33%

35%

2011 and later

28%

31%

36%

39.6%

In 2011, the rates will return to pre-EGTRRA levels. The tax rate brackets, except for the 10% bracket, will continue to be indexed for inflation

KPMG Observation Withholding rates generally are derived from individual income tax rates and brackets. Changes in tax rates can affect withholding. The Act's changes to the individual tax rates affect the withholding rate on supplemental wage payments and the backup withholding rate. Accordingly, certain payors need to make changes to their payment systems to reflect the appropriate rates of withholding.

The Conference Report expresses an intention that taxpayers who have been over-withheld as a consequence of the rate reductions obtain a refund of any over-withholding through the normal process of filing income tax returns, and not through the payor. The conferees anticipate that Treasury will provide a brief, reasonable period of transition for payors to implement the changes in the statutorily mandated withholding rates.


* All section references are to the Internal Revenue Code of 1986, as amended.
$ = USD
% = percent
Copyright © 2003 KPMG LLP, the U.S. member firm of KPMG International, a Swiss non-operating association. All rights reserved. The information contained in this report is general in nature and based on authorities that are subject to change. Applicability to specific situations is to be determined through consultation with your tax adviser. Privacy Policy :: Disclaimer