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2003 Numbers

Updated to reflect changes made by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (2003 Tax Act).

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Individual Income Tax

  1. Standard deductions
    • Regular standard deductions: $9,500 (increased from $7,950 by the 2003 Tax Act for MFJ or surviving spouse); $4,750 (S); $7,000 (HH); $3,975 (MFS).
    • Standard deduction for dependent: $750, or $250 + earned income, whichever is greater (same as 2002). However, the standard deduction may not exceed the regular standard deduction for that individual.
    • Additional standard deduction for married 65 or over or blind: $950. For single or HH age 65 or over or blind: $1,150 (same as 2002).
  2. Itemized deductions
    • Phaseout of itemized deductions begins at AGI of $139,500 (all returns except MFS); $69,750 (MFS).
  3. Personal exemptions
    • Personal exemption for 2003: $3,050.v
    • Phaseout of personal exemption begins at AGI of $209,250 (MFJ or surviving spouse); $174,400 (HH); $139,500 (S); $104,625 (MFS).
  4. Kiddie tax
    • Same as 2002 (child under age 14 with unearned income over $1,500 is subject to kiddie tax).
    • AMT exemption for child under age 14: the lesser of (1) $5,600 + child's earned income, or (2) $40,250 (increased from $35,750 by the 2003 Tax Act).
  5. Marginal income tax rates
    • The tax rate schedules for 2003 will be as follows:





  6. Luxury auto excise tax
    • No luxury auto excise tax in 2003.
  7. Earned income tax credit (EITC)
    • Disqualified income limit (generally investment income): $2,600.
    • Maximum amount of earned income on which EITC is based: $4,990 (no qualifying children); $7,490 (joint filers with one qualifying child); $10,510 (two or more qualifying children).
    • Phaseout of EITC begins at AGI of $7,240 (joint filers with no qualifying children); $6,240 (for others with no qualifying children); $14,730 (joint filers with one or more qualifying children); $13,730 (for others with one or more qualifying children).
  8. Charitable deductions
    • De minimis rules: Charitable contributions will be fully deductible if the donor makes a minimum payment of $40 and receives token gifts with a cost of $8.00 or less. Charitable contributions will also be fully deductible if the benefit received by the donor doesn't exceed the lesser of $80 or 2% of the amount of the contribution.
    • Use of auto for charitable purposes: The deductible standard mileage rate is 14 cents per mile.
  9. Foreign earned income exclusion
    • The foreign earned income exclusion is $80,000.
  10. Deductible standard mileage rates
    • Use of auto for medical purposes: 12 cents per mile.
    • Use of auto for moving purposes: 12 cents per mile.
  11. Child tax credit
    • Increased to $1,000 per qualifying child for 2003 and 2004 (from $600) by the 2003 Tax Act.
  12. Alternative Minimum Tax (AMT)
  13. Maximum AMT exemption amount for 2003 and 2004 under the 2003 Tax Act:

    • Married filing jointly or surviving spouse, $58,000 (previously $49,000).
    • Single or head of household, $40,250 (previously $35,750).
    • Married filing separately, $29,000 (previously $24,500).

    • AMT income exemption phaseout threshold:
    • Married filing jointly or surviving spouse, $150,000.
    • Single or head of household, $112,500.
    • Married filing separately, $75,000.

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Investment Planning
  1. Capital gains under the 2003 Tax Act
    • 20% rate is reduced to 15% for long-term capital gains on sales or exchanges on or after May 6, 2003 and before January 1, 2009. The 15% rate applies to taxpayers who are in a marginal tax bracket greater than 15%.
    • 10% rate is reduced to 5% (zero in 2008) on long-term capital gains for taxpayers who are in the 15% or lower marginal tax brackets.
  2. Dividends under the 2003 Tax Act
    • Dividends received by an individual shareholder from domestic and qualified foreign corporations will generally be taxed at the same rates as capital gains (15%, 5% for those in the 15% or lower marginal tax brackets, with the 5% rate lowered to zero for 2008). This change is effective for dividends received in 2003 through 2008.
    • Previously, dividends were taxed as ordinary income.

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Education Planning
  1. U.S. savings bonds
    • Phaseout of interest exclusion begins at modified AGI over $58,500 ($87,750 on a joint return).
  2. Coverdell education savings accounts (formerly known as education IRAs)
    • Annual contribution limit is $2,000.

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Retirement Planning
  1. 401(k), SARSEP, and 403(b) contributions (elective deferrals)
    • Annual contribution limit is $12,000.
    • Elective deferral for a SIMPLE retirement account is $8,000.
  2. Section 457 contributions
    • Annual contribution limit is $12,000.
  3. Defined contribution plans (Section 415 limit)
    • The dollar limit is $40,000.
  4. Defined benefit plans
    • The annual benefit limit is $160,000.
  5. IRA contributions (deductible, nondeductible, and Roth IRAs)
    • Annual contribution limit is $3,000 (increasing to $5,000 in 2008), plus $500 catch-up if 50 or older.

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Business Planning
  1. Qualified transportation fringe benefits
    • Employee can exclude up to $190 per month for qualified parking expenses.
    • Employee can exclude up to $100 per month for combined value of transit passes and transportation in a commuter highway vehicle.
  2. Earnings subject to Social Security taxes (taxable wage base)
    • Maximum annual earnings subject to Social Security taxes rises to $87,000 in 2003.
    • Social Security and Medicare combined tax rate remains at 15.3% (same as 2002), while the 6.2% OASDI (Old Age, Survivors, and Disability Insurance) tax rate applies to wages up to the new $87,000 wage base.
  3. Health insurance deduction for self-employed
    • Deduction for health insurance premiums paid by self-employed is 100% in 2003.
  4. Optional standard mileage rate
    • Use of auto for business purposes: 36 cents per mile.
  5. Increased section 179 expensing under the 2003 Tax Act
    • Maximum amount that may be deducted under section 179 is increased to $100,000 for property placed in service for tax years 2003, 2004, and 2005 (increased from $25,000).
    • Deduction reduced by amount by which cost of qualifying property placed in service during the year exceeds $400,000 (increased from $200,000).
  6. Special additional first-year depreciation allowance for certain property under the 2003 Tax Act
    • Special additional (bonus) first-year depreciation deduction equal to 50% of the adjusted basis of qualified property acquired after May 5, 2003 and before January 1, 2005, and placed in service prior to January 1, 2006.
    • The Job Creation and Worker Assistance Act of 2002 provided for 30% special additional first-year depreciation.
    • Property is not eligible for both the 50% and 30% special additional first-year depreciation.
  7. Tax on accumulated earnings and personal holding company income under the 2003 Tax Act
    • The tax rate on accumulated earnings and personal holding company income is reduced to 15% under the 2003 Tax Act. Previously, these items were taxed at the highest marginal personal income tax rate.

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Estate Planning
  1. Gift/transfer tax exclusions
    • The annual gift tax exclusion is $11,000 ($22,000 for spouses).
    • The annual exclusion for gifts to noncitizen spouses is $112,000.
    • The generation-skipping transfer tax (GSTT) exemption is $1,120,000.
  2. Special use valuation reduction limit
    • The limit on the decrease in value that can result from the use of special valuation increases to $840,000 in 2003.
  3. Qualified conservation easement exclusion
    • If requirements are met, the executor of the estate of a taxpayer dying after 1997 may elect to exclude up to 40% of the value of land subject to a qualified conservation easement. The amount that may be excluded from the gross estate is $500,000 in 2003.

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Protection Planning
  1. Long-term care insurance (LTCI)
    • Qualified LTCI premiums are deductible as medical expenses within the following limits:



    • Qualified LTCI benefits are excludable from income (as amounts received for personal injuries and sickness), subject to a per diem limitation of $220.

Government Benefits
  1. Social Security (general information)
    • Amount of earnings required for a quarter of coverage will be $890.
    • Domestic employee coverage threshold will be $1,400.
    • Average monthly Social Security benefit check for retired workers will increase to $895 in January 2003.
    • Maximum monthly benefit for a low-income couple (SSI) will increase to $829.
    • Maximum monthly benefit for a low-income beneficiary (SSI) will increase to $552.
    • Full retirement age increases to 65 years and 2 months.
    • Annual maximum earnings for Social Security beneficiary under full retirement age without a reduction in benefits (retirement earnings test) will be $960 monthly ($11,520 annually). One dollar in benefits will be withheld for every $2 in earnings above the limit. One dollar in benefits will be withheld for every $3 in earnings in excess of the earnings threshold in the calendar year of attaining age 65.
    • The 2003 Social Security monthly PIA (primary insurance amount) formula will be 90% of the first $606 of AIME (average index monthly earnings), plus 32% of the AIME over $606 and through $3,653, plus 15% of the AIME over $3,653.
  2. Earnings subject to Social Security taxes (taxable wage base)
    • Maximum annual earnings subject to Social Security taxes rises to $87,000 in 2003.
    • Social Security and Medicare combined tax rate remains at 15.3% (same as 2002), while the 6.2% OASDI (Old Age, Survivors, and Disability Insurance) tax rate applies to wages up to the new $87,000 wage base.
  3. Medicare (general information)
    • Medicare Part B premiums rise to $58.70 per month in 2003.
    • Medicare Part B deductible remains at $100 (same as 2002).
    • Medicare Part A monthly premium will be $316 for individuals with less than 30 quarters of Medicare-covered employment and for disabled individuals under age 65 who lost disability benefits because of work and earnings.
    • Medicare Part A monthly premiums for seniors with 30 to 39 quarters of Medicare-covered employment will be $174.
  4. Medicare Part A deductibles for inpatient hospital care
    • Deductible for up to 60 days of inpatient hospital care (fee-for-service Medicare) will increase to $840.
    • Deductible for 61 to 90 days will be $210 per day.
    • Deductible for 91 to 150 days will be $420 per day.
    • Deductible for beneficiaries in a skilled nursing facility in a benefit period will be $105 per day for the 21st through 100th day of extended care services.

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Other
  1. Qualified funeral trusts
    • Contributions to a qualified funeral trust may not exceed $7,800.


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