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J. Dennis Casty, CPA, CFP®
J.
Dennis Casty is President of FinPlan Co. of Park Ridge, IL
and creator of the Divorce Planner® software program -
a nationally recognized software program used by attorneys,
financial professionals and Courts to facilitate financial
analysis of divorce. Dennis is a CPA licensed in Illinois
and a Certified Financial Planner as well as a member of the
AICPA and the IL CPA Society.
Dennis
is a frequent speaker at national and state bar meetings on
how computers can assist family lawyers in financial planning
for divorce. He has written several articles on divorce tax
planning which have been published in both Fair$hare and ABA
Family Advocate and has also served as a lecturer for ABA
meetings on the tax impacts of divorce.
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Tip
of the Month:
Federal
Tax Rates for 2003
The
IRS has released the tax rates for 2003 reflecting the annual inflation
adjustments (Revenue Procedure 2002-70 contained in Internal Revenue
Bulletin 2002-46). These are the actual tax rates which will be
used when we file our tax returns for 2003 early in 2004. These
are NOT Circular E tax rates which are used by employers to withhold
taxes from paychecks. Circular E tax rates are not appropriate for
divorce analysis and the following rates should be used in evaluating
divorce settlements in 2003.
| Single |
|
Head
Household |
|
| Taxable
Income |
Rate |
Taxable
Income |
Rate |
| 0-6,000 |
10% |
0-10,000 |
10% |
| 6,000-28,400 |
$600 + 15% over 6,000 |
10,000-38,050 |
$1,000 + 15% over 10,000 |
| 28,400-68,800 |
$3,960 + 27% over 28,400 |
38,050-98,250 |
$5,207.50 + 27% over 38,050 |
| 68,800-143,500 |
$14,868 + 30% over 68,800 |
98,250-159,100 |
$21,461.50 + 30% over 98,250 |
| 143,500-311,950 |
$37,278 + 35% over 143,500 |
159,100-311,950 |
$39,716.50 + 35% over 159,100 |
| Over 311,950 |
$96,235.50 + 38.6% over 311,950 |
Over 311,950 |
$93,214 + 38.6% over 311,950 |
| Married, Joint |
|
Married, Separate |
|
| Taxable Income |
Rate |
Taxable Income |
Rate |
| 0-12,000 |
10% |
0-6,000 |
10% |
| 12,000-47,450 |
$1,200 + 15% over 12,000 |
6,000-23,725 |
$600 + 15% over 6,000 |
| 47,450-114,650 |
$6,517.50 + 27% over 47,450 |
23,725-57,325 |
$3,258.75 + 27% over 23,725 |
| 114,650-174,700 |
$24,661.50 + 30% over 114,650 |
57,325-87,350 |
$12,330.75 + 30% over 57,325 |
| 174,700-311,950 |
$42,676.50 + 35% over 174,700 |
87,350-155,975 |
$21,338.25 + 35% over 87,350 |
| Over 311,950 |
$90,714 + 38.6% over 311,950 |
Over 155,975 |
$45,357+ 38.6% over 155,975 |
|
Standard Deduction |
2003 |
|
Single |
4,750 |
|
Head of Household |
7,000 |
|
Married, Joint |
7,950 |
|
Married, Separate |
3,975 |
| |
|
|
Age 65 or Blind |
|
|
Married |
950 |
|
Unmarried |
1,150 |
| |
|
|
Personal Exemption |
3,050 |
|
Under
Age 17 Child Tax Credit |
600 |
Threshold Adjusted Gross Income Amounts for Phase-Out of:
Personal
Exemptions
|
Single |
139,500 |
|
Head of Household |
174,400 |
|
Married, Joint |
209,250 |
|
Married, Separate |
104,625 |
Itemized
deductions
|
Married, Separate |
69,750 |
|
All Other |
139,500 |
Child
Tax Credit
|
Single & Head of Household |
75,000 |
|
Married, Joint |
110,000 |
|
Married, Separate |
55,000 |
Earned
Income Credit
1
Child
| |
2003 |
|
Maximum Income (Hd
Hsld Single) |
$29,666 |
|
Maximum Income (Married, Joint) |
30,666 |
|
Allowed Income for Max Cr |
7,490 |
|
Max Cr 1 Child |
2,547 |
2
or More Children
| |
2003 |
|
Maximum Income (Hd
Hsld Single) |
$33,692 |
|
Maximum Income (Married, Joint) |
34,692 |
|
Allowed Income for Max Cr |
10,510 |
|
Max
Cr 2 Children |
4,204 |
Social
Security Tax
The
maximum Social Security tax for employees will be $5,394 (6.2%)
while the tax for self-employed workers will be $10,788 (12.4%).
In addition, the Medicare Tax of 1.45% for employees and 2.9% for
self-employed workers is applied to all earned income.
Other Important Tax Changes for 2003
Relating to Divorce
Increase
in Child Care Credit
The income ranges for the child care credit will be changed in 2003
and the child care credit will be increased. The 20% maximum rate
will apply if income is greater than $43,000 and a 35% rate will
apply to the first $15,000 of income.
Child Care Credit Income Ranges and Credit Percentages
2003
and thereafter
|
0-15,000 |
35% |
|
15,000-17,000 |
34 |
|
17,000-19,000 |
33 |
|
19,000-21,000 |
32 |
|
21,000-23,000 |
31 |
|
23,000-25,000 |
30 |
|
25,000-27,000 |
29 |
|
27,000-29,000 |
28 |
|
29,000-31,000 |
27 |
|
31,000-33,000 |
26 |
|
33,000-35,000 |
25 |
|
35,000-37,000 |
24 |
|
37,000-39,000 |
23 |
|
39,000-41,000 |
22 |
|
41,000-43,000 |
21 |
|
Over 43,000 |
20 |
The maximum credit at low income levels
will change in 2003 as shown below:
| |
One
Child Under Age 13 |
2 or More Children |
|
2002 |
$720 |
$1,440 |
|
2003 & thereafter |
$1,050 |
$2,100 |
The maximum credit applicable to all taxpayers
regardless of income will also increase in 2003 as shown below.
This 20% credit will apply if income exceeds $43,000 in 2003 while
in 2002 the income level for the 20% child care credit was $28,000.
|
20% Credit |
One
Child Under Age 13 |
2 or More Children |
|
2002 |
$480 |
$960 |
|
2003 & thereafter |
$600 |
$1,200 |
The
child care credit can be important in divorce analysis because some
states integrate a recovery of child care costs into the child support
formula and offset such costs with the child care credit. Since
child care credits are going up in 2003, guideline child support
will be impacted if your state is using the child care credit to
reduce child care costs considered to be shared in the child support
calculation.
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