The Economic Growth and Tax Relief Reconciliation Act of 2001 has a little something for taxpayers in every bracket. First, a new 10% bracket has been created for the first $6,000 of taxable income for single filers ($12,000 for joint filers), retroactive to January 1, 2001. On July 1, 2001, there was an immediate 1% reduction in income tax rates for the 28% and higher brackets; a gradual reduction will follow in succeeding years. For example, the 28% tax bracket was reduced to 27% on July 1, 2001, and eventually will decrease to 25% by 2006.
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Tax credits for children
The plan increased the child tax credit, from $500 to $600, which was effective retroactively to January 1, 2001. By 2010, the credit will reach $1,000 for children under the age of 17. Income phase-out limits still apply. Additionally, the child tax credit is partially refundable for families with three or more children.
Tax relief for married couples
Another major reform will provide relief from the so-called "marriage penalty," which occurs when the tax liability of joint filers is greater than if they had filed individually. The legislation corrects this disparity eventually, but relief won't start until 2005 and isn't completely phased in until 2009. The amount of joint-filer income taxed at the 15% bracket will gradually increase until it is double that of single filers, as will the standard deduction.
Note: Most of these tax cuts will expire on December 31, 2010, unless renewed by a future Congress.
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