2003 Tax Relief Act
The 2003 Tax Relief Act is formally known as the Jobs and Growth Tax Relief Reconciliation Act of 2003. Together with the Economic Growth and Tax Relief Reconciliation Act of 2001, these acts comprised what are now referred to as the "Bush tax cuts." These acts were credited by many with spurring economic growth. Many of the tax relief provisions in these acts are due to expire after 2010.
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Tax Rates
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A significant provision of the 2003 Act involved the reduction of individual income tax rates, particularly for middle class and high earnings taxpayers. Under previous tax legislation, the highest individual income tax bracket was 38.6 percent. The 2003 Act reduced this to 35 percent. The 35 and 30 percent individual income tax brackets were reduced to 33 and 28 percent, respectively.
In addition, the 2003 Act served to widen the 'married filing jointly' tax bracket for lower earning taxpayers, reducing the tax burden commonly known as the "marriage tax".
Capital Gains
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The 2003 Act greatly reduced the long-term capital gains rate, or the tax that must be paid on the sale of capital assets, such as stocks or bonds, held for more than one year. Most long-term capital gains, previously taxed at 8 percent, 10 percent or 20 percent, were reduced. The reduction took the capital gains rates as low as zero for certain low income taxpayers. Under the Act, most higher income taxpayers pay a maximum rate of 15 percent on all long-term capital gains.
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Dividends
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Prior to 2003, dividends were taxed at full, ordinary income tax rates. The 2003 Act allowed qualified dividends to be taxed at greatly reduced rates equivalent to those of long-term capital gains. In order to qualify, the asset -- typically a stock -- paying the dividends must have been held for a minimum of 60 days before or after the dividend is paid. The majority of corporate dividends are eligible to be taxed at this reduced rate.
Child Tax Credit
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The 2003 act doubled the size of the Child Tax Credit, from a maximum of $500 per child to a maximum of $1,000 per child. This credit is most beneficial to lower and moderate income taxpayers, as the credit is reduced and eventually eliminated for upper income taxpayers. As enacted under the 2003 Act, the Child Tax Credit is a nonrefundable credit, meaning that it can not result in a refund if no tax is paid.
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