Posted on: Sunday, June 1, 2003

Answers to questions on effect of tax cut

By Thomas A. Fogarty
USA Today

President Bush signed into law Wednesday a $350 billion tax cut package, the third in three years.

Among other provisions, it lowers tax rates on earned income, dividends and capital gains, and it increases to $1,000 the tax credit for children under age 17. Some questions and answers about the impact of the new law:

Q. When will I see my taxes cut?

A. Starting July 25, the Internal Revenue Service will mail 25 million checks to qualifying taxpayers who claimed the child credit for 2002.

Also in July, wage earners' paychecks will be a little fatter as employers shift to new withholding tables that reflect the tax cut. Beneficiaries of the lower rates on dividends and capital gains will see the cut when they file 2003 tax returns early next year.

Q. Who gets child credit checks first?

A. Taxpayers with the lowest final two digits on their Social Security cards.

Q. I've moved. Should I tell the IRS?

A. No, but make sure the post office has a forwarding address.

Q. High-income taxpayers lose eligibility for the child credit. How does the new law affect that?

A. The new law provides for broader income ranges in which a taxpayer qualifies for a partial credit. For example, married filers with incomes from $110,000 to $149,000 and claiming two children now qualify for a partial child credit. For single taxpayers with two children, the income range for a partial credit is now $75,000 to $114,000.

Q. I had too much income to claim a child credit on my 2002 return, but I'd be entitled to a partial credit on the basis of the expanded phase-out range. What do I do?

A. You can take it on your 2003 return.

Q. What if the IRS sends me a check based on my 2002 return but I end up making too much this year to qualify for it? What then?

A. It is possible. The IRS says you won't need to repay the money if that's how things turn out.

Q. I've just divorced. Can I cash the check without the endorsement of my ex?

A. No. If two names are on the check, both must sign.

Q. I've heard you can write off the cost of a new sport utility vehicle under the bill. True?

A. Somewhat true. To the outrage of environmentalists, the law allows small-business owners to deduct up to $100,000 for "heavy vehicles" in the year the money is spent. The largest SUVs qualify under the 6,000 pound-plus definition.

Q. Do the tax rate changes lower everyone's taxes?

A. Not everyone. If you report less than $12,000 taxable income as a married filer, or less than $6,000 as a single, you'll continue to be taxed at 10 percent.

Above that level, taxpayers will benefit by a combination of expanded tax brackets and lower rates.

Q. How big a difference will it make in my paycheck?

A. The government says it'll collect $22 billion less in wage withholding this year; $35 billion less next year. But spread over six months' wages of the nation's work force, it'll be just a few bucks per paycheck for most workers.