Calendar Year

28%

31%

36%

39.6%

2001 - 2003

27%

30%

35%

38.6%

2004 - 2005

26%

29%

29%

34%

2006 - 2009

25%

28%

33%

35%

Calendar Year

Child Tax Credit

% Refundable based on earned income over $10,000

2001 - 2004

$600

10%

2005 - 2009

$700

15%

2010

$800

15%

2011 +

$1000

15%

Present

New law

Individual income tax rates

Lowest bracket is 15%

Create new low-rate bracket of 10% for first $10,000 for HH, and $12,000 for MFJ effective, and $6,000 of income for all other filing status, effective for years beginning after December 31, 2000.

For years beginning after December 31, 2008, the HH bracket remains at $10,000, the MFJ bracket increases to $14,000, all other filing status increase to $7,000.  Inflation adjustments will apply to this tax bracket for years beginning after December 31, 2008.  (Act §101(a))

Individual income tax rates

The tax brackets are 15%, 28%, 31%, 36%, and 39.6%

For 2001 the rates of 28%, 31%, 36%, and 39.6% will be reduced to 27.5%, 30.5%, 35.5%, and 39.1%, respectively.  (The reduction takes place effective July 1, 2001, therefore instead of one full percentage point, the reduction is ½ of a percentage point.)

For 2002 and 2003 the rates of 28%, 31%, 36%, and 39.6% will be reduced to 27%, 30%, 35%, and 38.6%, respectively.

The rates will decrease one percentage point each even numbered year until the final rates of 25%, 28%, 33%, and 35%, respectively are reached in 2006.  (Act §101(a))

Individual income tax rates

Individual income tax rates (cont.)

none

An “advance refund check” will be sent to taxpayer for part of the amount of tax savings they will have as a result of these bracket changes.  The “advance refund check” will be equal to the amount of savings a taxpayer would have had for their 2000 tax return if the creation of the 10% bracket had been in effect for 2000.  (The 2000 return is used as the basis for determining the amount of the advance check and for no other purpose.  The purpose of this advance refund check is to put funds into the hands of the taxpayers so they will spend them and thus stimulate the economy.)

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Present

New law

Individual income tax rates (cont.)

Instead of having the 10% bracket incorporated into the tables and schedules for 2001, the 2001 return will have a credit equal to the amount of savings a taxpayer has as a result of the creation of this 10% bracket less the amount of the “advance refund check” already given to the taxpayer, (but not below zero).

Individuals not eligible for this advance refund check include estates or trusts, nonresident aliens, and dependents.  (Act §101(b))

Individual income tax rates

Withholding tables are changed effective January 1^st of each year

Special withholding rates apply to unemployment compensation, gambling winnings, etc.

Change withholding as soon as possible for 2001, to take into account the rate changes for 2001.

The special withholding rates applicable to unemployment compensation, gambling winnings, etc. will be at the applicable new rate.  For example, the 31% rate applicable to back-up withholding will now be at the 30.5% rate for the rest of 2001, beginning with payments after 60 days after President Bush signs the Act.  (Act §101(c))

Phase-out of personal exemptions

Phase-out begins at various levels based on filing status

The existing phase-out of personal exemptions is repealed for years beginning after December 31, 2009.  For the years 2006 & 2007 the phase-out will be reduced by 1/3, and another 1/3 for 2008 & 2009.  (Act §102)

Phase-out of itemized deductions

Phase-out begins at $132,950 ($66,475 for MFS)

The existing phase-out of itemized deductions is repealed for years beginning after December 31, 2009.  For the years 2006 & 2007 the phase-out is reduced by 1/3, and another 1/3 for 2008 & 2009.  (Act §103)

Child Tax Credit

$500 credit for each child under age 17, with phase-out at various levels based on filing status

This amount is increased as follows:  (Act §201(a))

•  2001-2004 - $600

• 2005-2008 - $700

• 2009 - $800

• 2010 - $1,000

Child Tax Credit

Nonrefundable except when a taxpayer has three or more children

Refundable to the extent of 10% of taxpayer’s earned income in excess of $10,000 (as indexed).  This rate increases to 15% for years beginning after December 31, 2004.

 The provision for families with three or more children remains and is used after the new provision above.

 Effective for years beginning after December 31, 2000.  (Act §201(c))

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Present

New law

Child Tax Credit

AMT calculated before credit through 2001

AMT is permanently calculated before this credit.  (Act §201(b))

Adoption Credit and Assistance Programs

A credit is allowed for up to $5,000 of qualifying expenses ($6,000 for a special needs child).  This credit ends for non-special needs children as of December 31, 2001.

The exclusion from income applies for this same amount when an employer is providing adoption assistance payments to an employee.  The exclusion from income for a non-special needs child ends after December 31, 2001.

The credit is permanently extended for the adoption of all children.

The credit is increased to $10,000 of qualifying expenses for all non-special needs children.  The credit continues to be allowed in the year after the year the expenses are paid, except for expenses paid or incurred in the year the adoption becomes final in which case the credit for those expenses is allowed in the year the adoption becomes final.

 The credit is automatically $10,000 for all special needs children, regardless of the amount of qualifying expenses, although the credit is only allowed in the year the adoption of the special needs child becomes final.

 The exclusion from income for employer provided benefits is permanently extended for the adoption of all children.

 The exclusion is increased to $10,000 of qualifying expenses for all non-special needs children.  The exclusion is automatically $10,000 for all special needs children, regardless of the amount of qualifying expenses.

 These provisions are generally effective with costs incurred and paid after December 31, 2001.  Although the limitation of $10,000 applies for the adoption of all children starting after December 31, 2001, the automatic $10,000 allowed for special needs children is effective for adoptions finalized after December 31, 2002.

 (Act §202(a) & §202(c))

Adoption Credit and Assistance Programs

The credit and exclusion is phased out at various income levels.

The start of the phase-out based on AGI increases from $75,000 to $150,000, beginning with years beginning after December 31, 2001.  (Act §202(b))

Adoption Credit and Assistance Programs

The credit is allowed to be used after AMT calculations for years through 2001.

AMT is permanently calculated before this credit.  (Act §202(f))

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Present

New law

Dependent Care Credit

Maximum credit is 30% with the rate decreasing by one percentage point for each $2,000 (or fraction thereof) that the taxpayer’s AGI exceeds $10,000, down to a minimum credit of 20% ($28,000 of AGI).

Maximum eligible expenses are $2,400 for one child and $4,800 for two or more children

Maximum credit is 35% with the rate decreasing by one percentage point for each $2,000 (or fraction thereof) that the taxpayer’s AGI exceeds $15,000, down to a minimum credit of 20% ($43,000 of AGI).

Maximum eligible expenses are $3,000 for one child and $6,000 for two or more children.

These provisions are effective for years beginning after December 31, 2002.

 (Act §204)

Child Care Assistance Credit for Employers

Employers can deduct expenses relating to supporting child care.

A credit is allowed for 25% of qualified child care expenses and 10% of qualified child care resource and referral expenditures (up to a maximum credit of $150,000 per year) for providing a qualified child care facility.  There are many restrictions to this provision, but it will still benefit many employers who make or provide day care facilities for their employees. This is effective for years beginning after December 31, 2001.  (Act §205)

Marriage penalty

Standard deduction

Increase standard deduction for MFJ to twice the amount allowed for unmarried taxpayer filing as Single, phased-in over five years beginning in 2005.  (Tax year 2005 will provide MFJ filers a standard deduction equal to 174% of the amount allowed to taxpayers filing Single.)  (Act §301)

Marriage penalty

The MFJ 15% tax bracket is higher than the Single tax bracket, but not double

Increase the MFJ 15% tax bracket ceiling to twice the Single 15% tax bracket ceiling, phased-in over four years beginning in 2005.  (Tax year 2005 will provide MFJ filers a 15% tax bracket ceiling equal to 180% of the amount allowed to taxpayers filing Single.)  (Act §302)

Earned income tax credit

The starting of the phase-out of the EIC for MFJ filers is the same as Single filers

The starting of the phase-out of the EIC for MFJ filers will be higher than Single filers, effective for years beginning after December 31, 2001.  (Act §303(a))

Earned income tax credit

Nontaxable earned income is included in computation

Only includes earned income included in the taxpayer’s gross income.   This simplifies the calculation by removing the former inclusion of nontaxable earned income from the computation of the EIC.  Effective for year beginning after December 31, 2001.  (Act §303(b))

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Present

New law

Earned income tax credit

Modified AGI must be calculated

Replaces “modified AGI” with “AGI”.  Effective after 2001.  (Act §303(d))

Earned income tax credit

Earned income credit definition of qualifying child is somewhat confusing, especially “foster child”

Some simplification exists.  Now a qualifying child must be

1)      A son, daughter, stepson, or stepdaughter, or a descendant of any such individual,

2)      A brother, sister, stepbrother, or stepsister, or a descendant of such, or

3)      An eligible foster child of the taxpayer.  A foster child is defined as an individual who:

a)      is placed by an authorized placement agency, and

b)      the taxpayer cares for as his/her own child.

 Effective for year beginning after December 31, 2001.  (Act §303(e))

Earned income tax credit

Tie-breaker rules when two people are eligible for EIC for same child basically say higher AGI

New tie-breaker rules exist in this order:

1)      If one taxpayer is the child’s parent, that taxpayer is the only one who can receive the credit,

2)      If both taxpayers are the child’s parents, the one the child lives with most during the year is the “winner”,

3)      If both taxpayers are the child’s parents and the child lived with both equally, then the parent with the highest AGI is the “winner”, and

4)      If no one claiming the child is the child’s parent, then the taxpayer with the highest AGI is the “winner”.

 Effective for year beginning after December 31, 2001.  (Act §303(f))

Education IRAs

$500 annual contribution.

A phase-out for MFJ beginning at $150,000 with a $10,000 range

The contribution limit increases to $2,000.

The phase-out for MFJ begins at $190,000 with a $30,000 phase-out range.

Effective for year beginning after December 31, 2001.  (Act §401(a) & §401(b))

Education IRAs

Distributions deemed taken at age 30

This does not apply in the case of a special needs beneficiary, to be defined by regulations.  Effective for year beginning after December 31, 2001.  (Act §401(d))

Education IRAs

Contributions must be made by December 31

Contributions are treated as if made on the last day of the year if they are made by the unextended due date of the contributor’s Federal income tax return for the contribution year (generally April 15 for individuals).  This is effective for years beginning after December 31, 2001.  (Act §401(f))

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Present

New law

Education IRAs

Contributions must be made by individuals

Contributions can be made by corporations and other entities (including tax-exempt organizations) regardless of their income during the year of the contribution.  This is effective for years beginning after December 31, 2001.  (Act §401(e))

Education IRAs

Qualified expenses are defined and must be for “higher” (post-secondary) education

Qualified expenses is expanded to include:

1)      Expenses for tuition, fees, academic tutoring, special need services, books, supplies, and other equipment incurred in connection with the enrollment or attendance of the beneficiary at a public, private, or religious school,

2)      Expenses for room and board, uniforms, transportation, and supplementary items or services (including extended day programs) required or provided by such a school in connection with such enrollment, and

3)      Expenses for the purchase of any computer technology or equipment (as defined in §170(e)(6)(F)(i)) or Internet access and related services, if such technology, equipment, or services are to be used by the beneficiary and the beneficiary’s family during any of the year the beneficiary is in school.

The term “school” includes any school that provides elementary or secondary education (K-12), as determined under State law, as well as “higher” education as provided under the former law.

 Effective for year beginning after December 31, 2001.  (Act §401(c))

Education IRAs

Contributions cannot be made after beneficiary reaches age 18

The age limitation does not apply in the case of a special needs beneficiary, to be defined by regulations.  Effective for year beginning after December 31, 2001.  (Act §401(d))

Education IRAs

Excess contributions must be removed by the due date of the beneficiary’s tax return for the year of the contribution.  If no return is filed, the excess must be removed by the 15^th day of the 4^th month after the end of the year.

Excess contributions must be removed before the 1^st day of the 6^th month following the year for which the contributions were made.  (Normally this will be “before June 1^st”.)

 Effective for years beginning after December 31, 2001.  (Act §401(f))

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Present

New law

Education IRAs

Exclusion does not apply if Hope or Lifetime Learning credit is claimed for this student

Both the exclusion and the credits can be claimed for the same student in the same year, but the exclusion cannot be claimed for the same dollars used to determine the amount of the credits.  Effective for years beginning after December 31, 2001.  (Act §401(g))

State Tuition Programs

Existence under §529 is limited to state programs

This is expanded to include educational institutions once they obtain a ruling or determination that their program meets the requirements. Effective with contributions after 2001 and distributions after 2003.  (Act §402(a)(1))

State Tuition Programs

The State must impose a non de minimis monetary penalty for nonqualifying distributions

An additional 10% tax is assessed on the amount of nonqualifying distributions after December 31, 2003.  The same exceptions that apply to nonqualifying distributions from Education IRAs also apply to these programs.  (Act §402)

State Tuition Programs

Qualifying expenses include room and board

The definition of “room and board” is changed to the amount that is used for determining costs when applying for Federal financial aid programs.  (Act §402(e))

Employer provided educational assistance

The exclusion from income for this benefit has been extended temporarily many times

The exclusion from income for employer provided educational assistance is made permanent.  (Act §411(a))

Employer provided education assistance

Employer provided educational assistance for graduate level courses are not eligible for the exclusion.

Graduate level courses qualify for the exclusion effective for courses beginning after December 31, 2001.  (Act §411(b))

Student loan interest

Limited to a 60-month payment period

Unlimited payment period for interest paid after December 31, 2001, in tax years ending after December 31, 2001.  (Act §412(a))

Student loan interest

Phase-out limitation applies

The phase-out limits are increased to $50,000 ($100,000 for MFJ), with a phase-out range of $15,000 ($30,000 for MFJ), effective for tax years ending after December 31, 2001.  (Act §412(b))

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Present

New law

Education expense deduction

Limited to work related expenses and is part of the 2% Miscellaneous Itemized deductions

1)      Creates an above the line deduction for up to $3,000 (per return) of expenses in 2002 & 2003 if modified AGI is not more than $65,000 ($130,000 for MFJ, $0 for MFS).  (No deduction is allowed if modified AGI exceeds these amounts, respectively)

2)      This increases to $4,000 in 2004 & 2005 if modified AGI is not more than $65,000 ($130,000 for MFJ, $0 for MFS); $2,000 if AGI is over $65,000 but not over $80,000 ($160,000 for MFJ, $0 for MFS). (No deduction is allowed if modified AGI exceeds these amounts, respectively)

3)      Deduction is not permitted for a student if either the Hope or Lifetime Learning credit is taken for a student.

4)      Expenses have same definition as Hope and Lifetime Learning credits.

5)      Denied if taxpayer is eligible to be claimed by another taxpayer.

6)      Deduction is denied for nonresident aliens.

Effective for tax years beginning after December 31, 2001 and before January 1, 2006.  (Act §431(a))

Estate tax

Exists

Repealed for deaths after December 31, 2009.  (Act §501(a))

Generation skipping transfer tax

Exists

Repealed for transfers after December 31, 2009.  (Act §501(b))

Estate tax

Qualified Domestic Trusts

With respect to the surviving spouse of a decedent dying before January 1, 2010,

§2056A(b)(a)(B) will not apply after December 31, 2009, and §2056A(b)(a)(A) will not apply after December 31, 2020.  (Act §501(a))

Estate and Gift tax

Maximum tax rate is 55%.

 Also have a 5% surtax to bring the maximum effective rate to 55%

Eliminate the surtax and the top two rates so maximum rate is 50% for a decedent dying or gifts made after December 31, 2001.  (Act §511(a))

Estate and Gift tax

Maximum tax rates exceed 50%

Reduce the maximum tax rate by one percentage point each year starting with calendar year 2003 (49%) and ending with 2007 (45%).  (Act §511(c))

Estate tax

Exemption amount gradually increases

The exemption amount is increased to:  (Act §521(a)) 

• $1,000,000 for the years 2002 & 2003,

• $1,500,000 for the years 2004 & 2005,

• $2,000,000 for the year 2006, 2007, & 2008, and

• $3,500,000 for the year 2009.

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Present

New law

Estate tax

Credit for state death taxes

The state death tax credit is reduced by:

• -         25% for the year 2002,

• -         50% for the year 2003,

• -         75% for the year 2004, and

• -         replaced for years after 2004 with a deduction for the amount of estate, inheritance, legacy, or succession taxes actually paid to any State or the District of Columbia.  (Act §532(b))

Generation skipping transfer tax

Exemption amount is $1,000,000

Exemption amount is equal to the Estate Tax Exemption above.  (Act §521(c))

Gift tax

Maximum tax rates exceed 50%

For gifts made after December 31, 2009, the maximum gift tax rate is 35%.  (Act §511(d))

Gift tax

Exemption amount gradually increases to $1,000,000

Exemption amount is $1,000,000 for gifts made after December 31, 2001.  (Act §521(b))

Special benefit for Family Owned Business Interests

This benefit is repealed for deaths after December 31, 2003.  (Act §521(d))

Estate tax

Estates are generally required to be reported if their value exceed the exemption amount

An estate tax return is required for any estate that exceeds $1,300,000 in value.  Failure to file this return is subject to a possible $10,000 failure to file penalty.  The due date is the same as the due date for the decedent’s final income tax return.  (Act §542(b))

Gift tax

Taxable gifts are required to be reported.  This is generally any gift of a present interest that exceeds the $10,000 annual exclusion and any gift of a future interest

A gift tax return is required for any noncash gift with a value in excess of $25,000 (except for gifts to charitable organizations).  Failure to file this return is subject to a possible $500 failure to file penalty, and a $50 penalty per donee for failing to report such information to the donee.

 Effective for gifts after December 31, 2009.  (Act §542(b))

Sale of residence

Exclusion of $250,000 ($500,000 for MFJ) is available to individuals

The estate or beneficiary of a decedent’s principal residence can use the exclusion upon the sale of the property if the decedent met the ownership and use tests.  Effective for deaths after December 31, 2009.  (Act §542(c))

Estate tax

A conservation easement adjustment exists for certain real estate located in specific areas

The location restrictions have been replaced with “located in the United States or any possession of the United States”, effective for deaths occurring after December 31, 2000.  (Act §551)

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Present

New law

Basis

Inherited property generally has a basis equal to the FMV on the date of death, except for certain property such as IRD

This “step-up” in basis to FMV on the date of death is repealed with respect to decedents dying after December 31, 2009.  (Act §541)

1)      The basis of inherited assets with respect to decedents dying after December 31, 2009, will be the lesser of the decedent’s adjusted basis in the assets or the FMV of the assets on the date of death (DOD).

2)      A basis increase is allowed for “certain property.”  This increase is $1,300,000, plus NOL and capital loss carryovers from the decedent’s final return, plus the loss that would have been allowable under §165 if inherited property had been sold at FMV immediately before the decedent’s death.  This increase cannot increase the basis of any property above its FMV on the DOD.

3)      “Certain property” must have been owned by the decedent on the DOD.

a)      If jointly owned with spouse as tenancy by the entirety, it is considered 50% owned,

b)      If jointly owned as joint tenants with rights of survivorship is considered owned based on the decedent’s contribution percentage,

c)      If jointly co-owned due to gift, bequest, devise, or inheritance, the ownership percentage is determined by dividing the value of the property by the number of joint tenants with right of survivorship,

d)      Property in a revocable trust is considered owned by the grantor,

e)      Power of appointment does not create an ownership,

f)        If at least ½ of community property would be considered owned by the decedent under one or more of these provisions, then 100% of the community property is treated as owned by the decedent.

4)      “Certain property” is defined by what it is not.  It does not include:

• a)      Property acquired by the decedent by gift within 3 years of DOD, except if received by gift from spouse,

• b)      Stock or securities in a foreign personal holding company,

• c)      Stock of a DISC or former DISC,

• d)      Stocks in certain other foreign investment companies,

• e)      Property which falls under the IRD rules.

5)      This $1,300,000 increase is $3,000,000 for qualified spousal property which is property transferred from a decedent to a spouse as a) outright transfer property (property transferred directly to the spouse with some limitations), or b) qualified terminable interest property (property in which the spouse has an income interest in for life).

Effective for deaths after December 31, 2009.  (Act §542(a))

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Present

New law

IRA

Contributions are limited to $2,000

Contribution limits are increased to:  (Act §601)

• -         $3,000 for tax years beginning in 2002 through 2004,

• -         $4,000 for 2005 through 2007, and

• -         $5,000 for 2008 and after.

IRA

Contributions are limited to $2,000

The contribution limit for an individual who is age 50 or over at the end of the year is increased by $500 for the years beginning in 2002 through 2005, and $1,000 for the years beginning in 2006 or after.  This is referred to as a “catch-up” contribution.  (Act §601)

Pensions

Defined benefit plan currently has a limit of $90,000 (indexed)

This limit is increased to $160,000, effective for years ending after December 31, 2001.  (Act §611(a))

Pensions

Compensation is limited to $150,000 (indexed)

 The maximum contribution limit is $30,000 (indexed)

Compensation limits increase to $200,000.

 The maximum contribution limit is increased to $40,000.

 These are effective for years beginning after December 31, 2001.  (Act §611(b))

Pensions

Elective deferrals under §401(k), SARSEPs, and 403(b) annuities have a maximum of $10,000 (indexed)

The deferral maximum increases to $11,000 for years beginning after December 31, 2001.  This amount increases $1,000 each year after, until it reaches its maximum of $15,000 for years beginning after December 31, 2005.

 (Act §611(c))

Pensions

Elective §457 deferrals have a maximum of $7,500 (indexed)

The deferral maximum increases to $11,000 for years beginning after December 31, 2001.  This amount increases $1,000 each year, until it reaches its maximum of $15,000 for years beginning after December 31, 2005.  (Act §611(d))

Pensions

SIMPLE deferrals have a maximum of $6,000 (indexed)

The deferral maximum increases to $7,000 for years beginning after December 31, 2001.  This amount increases $1,000 each year after, until it reaches its maximum of $10,000 for years beginning after December 31, 2004.  (Act §611(e))

Pensions

Stock Bonus and Profit Sharing plans have a contribution deduction limit of 15%

The contribution deduction limit increases to 25% effective for years beginning after December 31, 2001.  (Act §616)

Pensions

Contributions to a defined contribution plan by employees are limited to 25% of compensation

This limitation is generally increased to 100% for years beginning after December 31, 2001.  (Act §632)

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Present

New law

Pensions/IRAs

none

A taxpayer can elect to treat part of the elective deferrals as after-tax Roth contributions effective for years beginning after December 31, 2005.  Upon distribution, these amounts can be rolled into another designated Roth account or into a Roth IRA.  Distributions from these accounts would be tax-free under the same provisions as a Roth IRA.  (Act §617)

Pensions

none

A nonrefundable credit can be claimed for elective deferrals and IRA contributions equal to a percentage of the first $2,000 of deferrals and IRA contributions, providing the taxpayer’s AGI is low enough ($50,000 for MFJ, $37,500 for HH, and $25,000 for others).  The percentage starts at 50%, reduced to 20%, 10%, and finally 0% as the taxpayer’s AGI increases.

 The taxpayer must be at least 18 years of age by the end of the year, cannot be eligible to be claimed by another taxpayer for the year, cannot be a student as defined in the dependency tests.

 This credit is taken after AMT calculations.

 Other limitations apply including denial if there have been distributions in the prior two years.

 Effective for years beginning after December 31, 2001.  (Act §618)

Pensions

Employers receive a deduction for their expenses relating to setting up a new retirement account

A credit is available for the employer equal to 50% of the employer’s qualified start-up costs.  The credit maximum is $500 for the first year and each of the following two years.

 The credit becomes part of the General Business Credit, but cannot be carried back to any year beginning before January 1, 2002.

 Effective for years beginning after December 31, 2001.  (Act §619)

Pensions

Fully vested after either five years (with no vesting requirement each of first four years) or seven years (with 20% vesting after third year and increasing by 20% each year thereafter)

The vesting changes to 1) full vesting after three years with no vesting requirement each of first two years, or 2) full vesting after six years (with 20% vesting after second year and increasing by 20% each year thereafter).

 Effective for plan years beginning after December 31, 2001, except for collective bargaining agreements.

 (Act §633)

Present

New law

Pension

none

Similar to the IRA catch-up provision, an individual who is age 50 or over at the end of the year can make additional catch-up deferrals to §401(k), §403(b) annuities, SARSEPs, SIMPLEs, and §457 plans. 

The additional catch-up deferrals for §401(k), §403(b) annuities, SARSEPs, and §457 plans is:

• -         $1,000 for 2002,

• -         $2,000 for 2003,

• -         $3,000 for 2004,

• -         $4,000 for 2005, and

• -         $5,000 for 2006 and after.

 The additional catch-up deferrals for a SIMPLE is:

• -         $500 for 2002,

• -         $1,000 for 2003,

• -         $1,500 for 2004,

• -         $2,000 for 2005, and

• -         $2,500 for 2006 and after.

 This does not apply to a §457 plan for an employee’s last three years before retirement since a special provision already exists under §457(b)(3).

 The catch-up deferral cannot be nondeductible contributions.

 This is effective for years beginning after December 31, 2001.  (Act §631)

Pensions

QDRO rules do not apply to §457 plans

QDRO rules apply to §457 plans and the taxation will be the same as other plans under §402(e)(1), effective for plan years beginning after December 31, 2001.  (Act §635)

Pensions

Rollover options are limited, depending on the type of plan

1)      Distributions from qualified retirement plans, §403(b) annuities, and governmental §457 plans can generally be rolled over to any such plans or arrangements.

2)      The 10-year averaging option is not permitted if there was a rollover from a plan that would not have been eligible for the 10-year averaging under prior law.

3)      Surviving spouses are able to roll over distributions from the deceased spouse’s plans.

Effective for distributions made after December 31, 2001. (Act §641)

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Present

New law

IRAs

Distributions can be rolled over into the same IRA or another IRA

Distributions from an IRA can also be rolled over into qualified plan, §403(b) annuity, or governmental §457 plan.  Contrary to normal traditional IRA distribution rules, amounts rolled over under this provision will deemed to be from pre-tax contributions and earnings existing in the traditional IRA.  After-tax contributions to an IRA cannot be rolled into any of these non-IRA plans.

 Effective for distributions after December 31, 2001.  (Act §642)

Pensions/IRAs

Distributions of after-tax contributions in a qualified plan cannot be rolled over

Rollovers of distributions of after-tax contributions in a qualified plan are permitted, but only through a direct rollover.  The new plan must have a separate accounting for the rolled in after-tax amounts and subsequent earnings.  Effective for distributions after December 31, 2001.  (Act §643)

Pensions/IRAs

Rollovers must be accomplished within 60 days

The Secretary may waive the 60-day requirements where the failure to waive such requirement “would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.”  Effective for distributions after December 31, 2001.  (Act §644)

Pensions

none

A trustee-to-trustee transfer from a §403(b) plan to a defined benefit governmental plan will not generate income if the transfer is for the purchase of permissive service credit under the plan or certain repayments to which §415 does not apply.  (Act §647)

Pensions

Amounts deferred under a §457 plan are includible in income when paid or made available

Amounts deferred under a §457 plan are includible in income only when paid, effective for distributions after December 31, 2001.  (Act §649)

Alternative Minimum Tax

Exemption amounts are $45,000 for MFJ, $22,500 for MFS, and $33,750 for unmarried individuals.

Increase the exemption amounts (one time) by $4,000 for MFJ and $2,000 for all other filing status, effective for years beginning after December 31, 2000 and beginning before January 1, 2005.  (Act §701)

Corporation Estimated tax payments

Corporations make estimated payments in the 4^th, 6^th, 9^th, and 12^th month of their tax year.

100% of a corporation’s estimated payments normally due on September 17, 2001, are not due until October 1, 2001.

 20% of a corporation’s estimated payments normally due on September 15, 2004, are not due until October 1, 2004.  (The remaining 80% of this amount is due on September 15, 2004.) (Act §801)