Broker Check

January 17, 2003

Happy New Year!

    The following tax rates and amounts are effective for 2003:

  1. OASDI rate remains at 6.2% but wage base rises to $87,000 from $84,900.
  2. Medicare rate remains at 1.45% and there is no wage limit.
  3. The maximum earnings one can earn before social security benefits will start to be withheld is $30,720 for those under age 65 and two months. There is no limit on earnings for those older than 65 and two months. The retirement age for social security continues to rise this year. Those turning 62 this year are affected. They will get reduced benefits if they start receiving payments before they attain age 65 and eight months. Ultimately, anyone born after 1959 won’t get full benefits before age 67 Social Security benefits will rise 1.4%.
  4. Personal exemptions rise to $3,050 from $3,000 and exemptions will begin to phase out at $209,250 of AGI for couples. For singles, $139,500. Taxpayers in the phaseout zones face higher marginal income tax rates. The effect is to add .87% per exemption for taxpayers in the 35% tax bracket.  Filers in the 38.6% bracket effectively pay an extra .96% per exemption. This adds 3.49% to the effective marginal rate for a top bracket family of four.
  5. Standard deduction will increase to $7,950 for marrieds in ‘03, up from $7,850. For children age 14 who must file returns, it remains at $750. Can be as high as $4,750 if they have earned income.
  6. Income tax rates remain for ‘03 at 10%, 15%, 27%, 30%, 35% and 38%. Those in the 15% or lower brackets receive a reduced rate on gains in 2003. Their 10% rate on gains falls to 8% for stock held more than five years and sold after 2000. The 10% rate remains for bottom bracket individuals who take profits on shares owned at least one year but not more than five. Stocks purchased after 2000 can have an 18% rate for individuals in the 27% tax bracket and above. Shares must be owned for five years. So, the earliest the 18% rate could apply is for sales made in 2006. Stock bought before 2001 could qualify for the lower rate as well, but holders must pay an up front toll charge to obtain the rate cut.
  7. Federal unemployment Tax Rate (FUTA) remains at .8%.
  8. IRS interest rate on refunds declines to 5% and 6% on taxes owed.
  9. Alternative Minimum Tax rate remains at 26% on first $175,000 of income and 28% over that. More people will pay this since brackets and exemptions are not indexed and there are fewer deductions allowed.
  10. Back up withholding rate remains at 30%.
  11. 401(k) pay-in limitation rises to $12,000, up from $11,000, with $2,000 more for employees 50 and older.
  12. 403(b) contribution limit rises to $12,000, up from $11,000. Employees age 50 and older can put in an additional $2,000.
  13. 457 contribution rises to $12,000, up from $11,000. Employees age 50 and older can contribute an additional $2,000.
  14. Maximum level of pay on which pay-ins to plans can be based upon rises to $205,000, with the maximum pay-in for defined contribution plans remaining at $40,000. Percentage of compensation that can be put in rises to 100% from 25%. Profit Sharing percentage rises to 25% from 15%.
  15. Business meal and entertainment deductibility remains at 50%. Standard business mileage allowance is reduced to 36¢ per mile, down from 36.5¢. Medical travel rate falls to 12¢ from 13¢ per mile. Charitable driving rate is still 14¢ a mile.
  16. Self-employeds and owners of corporations can deduct 100% of medical insurance premiums as an adjustment to arrive at adjusted gross income, up from 70%.
  17. Federal estate tax exemption remains at $1,000,000. Maximum rate drops to 49% from 50%.
  18. New York State Disability Insurance employee percentage remains at .5% of wages but not more than 60¢ per week.
  19. Threshold for deposit requirements remains at $1,000.
  20. Maximum amount of rapid depreciation for small businesses rises to $25,000, from $24,000.
  21. Simplified per diem allowances are up slightly for ‘03.
  22. Parents get tax credits for children under 17, $1,000 per child. Phaseout for marrieds with AGI exceeding $110,000 and singles over $75,000.
  23. Phaseout for IRA deductions start at $60,000 and end at $70,000 for couples. Phaseout for singles is from $40,000 to $50,000. Contribution limit remains at $3,000. If 50 or older, can contribute up to $3,500.
  24. More interest on some education loans is deductible in ‘03. Deduction now no longer requires interest paid within 60 months.
  25. Eligible portion of long term care premium rises for 2003, up to $3,130 for those age 70 and older, $2,510 between ages 60 and 70, $940 between ages 50 and 60, $470 from 40 to 50 and $250 for age 40 and under, deductible as medical expenses. It is the age at the end of 2002 that counts. Daily limits for payments is $220, up from $210.
  26. Medicare Part B premium rises to $58.70, up from $54 in 2002.
  27. Luxury car tax is eliminated in 2003.
  28. The maximum amount of compensation an employee may elect to defer under a SIMPLE plan rises to $8,000 from $7,000. If employee is born before ‘53 can contribute $9,000.
  29. The nanny tax threshold rises to $1,400 from $1,300.  No social security tax is due for domestics paid $1,400 or less this year. It is not indexed for inflation. FUTA is due whenever a domestic employee is paid $1,000 or more in a calendar quarter in the current or prior year.
  30. The exemption from the Kiddie Tax for 2003 remains at $1,500. A parent will be able to elect to include a child’s income on the parent’s return for 2003 if the child’s income is more than $750 and less than $7,500.
  31. Low and middle income savers can get a tax credit of up to $1,000 for contributions made to IRAs and qualified plans. Credit disappears for MFJ when AGI hits $50,000, $25,000 for singles.
  32. Coverdell education savings accounts payins quadrupled to $2,000 and contributions for ‘02 can be made by 4/15/03. Withdrawals are tax free if used for education, including K-12 schooling and expenses.
  33. $3,000 above the line deduction for college costs remains. Phases out for MFJ with AGI over $130,000, singles at $65,000.
  34. Adoption tax credit rises to 100% of up to $10,160 of expenses. Phaseout starts at $152,390 AGI.
  35. Limit on eligible expenses for Lifetime Learning credit doubles to $10,000. Maximum potential credit doubles to $2,000. This year the Lifetime Learning credit is larger than the Hope Credit. If you have two children, you should use the Lifetime Learning Credit for one, the Hope Credit for the other. Phaseout for MFJ starts at $83,000, $41,000 for singles.
  36. Company provided retirement planning is now a tax free fringe benefit.
  37. Maximum eligible expenses for child and dependent care expenses rises to $3,000 for one and $6,000 for two or more qualifying dependents, up from $2,400 and $4,800.
  38. Gift tax exclusion remains at $11,000 per donee for gifts made in 2003. (Kiplinger Tax Letter 1/3/03) 

     As always, if you have any questions about these or any other matters, do not hesitate to call me. Remember, We're Here For You !!