Lower tax rates for all, rebate checks for some
By Kay Bell • Bankrate.com

President Bush called it "itty bitty." Democrats derided it as a gimmicky giveaway to the wealthy. And pollsters said most Americans put tax-cut legislation low on their wanted lists.

But just before the Memorial Day weekend, the country's third largest tax-cut in history was passed. And it's a safe bet that, despite the polls, nobody's going to refuse the extra dollars the legislation will provide most taxpayers.

So just what do the tax changes mean to you?

• Smaller tax bite from your paycheck
• Extra cash for some parents
• Temporary relief from "marriage penalty"
• Lower taxes for many investors

Enjoy the breaks while you can. Most are, at least officially, slated to end within a few years. Congress is increasingly using such short-term legislative moves so that when it looks at the federal balance sheet, tax cuts don't produce more red ink.

Of course, Congress could always make more changes down the road. Until then, these are the details on the latest tax-law changes.

Lower income tax rates
Income tax brackets are now lower than ever. The reductions are retroactive to the beginning of the year and mean that many workers should soon be getting slightly larger paychecks.

The 10 percent and 15 percent rates remain, but the four higher brackets are cut:

The income ranges covered by the 10 percent and 15 percent categories also will increase slightly -- up to $7,000 for single taxpayers, $14,000 for joint filers. This means that more of your income will be taxed at lower rates.

When lawmakers last tinkered with the tax brackets, they decided to get tax money into individuals' hands via "rebate checks." This time, Congress is leaving it to employers. Businesses will soon get new tax withholding tables and make adjustments in workers' paychecks to reflect the new rates. July 1 is the target date for the new tables.

What about payroll withholding already collected at the now-too-high rates? In most cases, it means you gave Uncle Sam a bit too much for the first half of the year. This could produce a bit bigger refund (or smaller tax bill if you expect to owe) when you file your 2003 return.

Child credit increase
Some taxpayers who have dependent children, however, will be getting a $400 government check this summer.

Previously, eligible parents could reduce their taxes by $600 per youngster. The credit amount was set to gradually increase until it reached $1,000 in 2010. The new law speeds up the timetable for the increase. The $1,000 credit is now effective for 2003 taxes.

Rather than making parents wait for the money, the Treasury Department will send $400 checks to filers who claimed the child tax credit on 2002 returns. This was the method Uncle Sam used two years ago when it issued "rebate checks" to reflect the newly created (and retroactive) 10 percent income tax rate.