New tax laws that could affect your 2003 returns
By Kay Bell • Bankrate.com

In May 2003, the third-largest tax cut in U.S. history became law. Now, as taxpayers fill out their returns, they must deal with the practical application of the legislation.

Here's a look at 10 tax laws that you might encounter as you file your taxes.

1. Tax bracket tweaks
Lower tax rates have been slowly phasing in, but lawmakers last year decided the pace was too slow and accelerated the process.

The four higher tax rates were dropped to levels they weren't supposed to hit for three more years. They now stand at 25 percent, 28 percent, 33 percent and 35 percent. The 10 percent and 15 percent tax brackets remain, but were widened a bit, meaning more earnings are now taxed at these lower levels. Bankrate has a list of the income ranges for all six tax brackets.

And since the changes went into effect in July, workers who didn't change their withholding amounts for the last half of the year might see a slightly bigger refund -- or smaller tax bill -- than they were expecting.

2. Marriage tax breaks
Married couples who file joint returns got a couple of tax-law wedding gifts from Uncle Sam. Previously, husbands and wives filing one return paid, in many cases, more taxes on their combined income than did unmarried couples filing separate returns as single taxpayers. Now the 15 percent bracket for married joint filers is twice that of single filers, effectively eliminating the so-called marriage penalty.

In addition, the new tax law increased the standard deduction for married filers to $9,500. This, too, is twice the deduction afforded single taxpayers.

3. Child tax credit gets bigger sooner
Every parent is well aware that the child tax credit jumped from $600 to $1,000 per child. Many taxpayers already got the benefit of this increase thanks to the advance payments sent out last fall. Now, as check recipients complete their tax returns, they must account for that early payment.

If you got an advance child tax credit check, you must reconcile that early payment with what you can claim on your return. The amount you're allowed to take goes on line 49 of your 1040 (line 33 if you file a 1040A). You'll find a worksheet in your tax return instructions to help you figure out how much to claim. Be sure to report your advance payment accurately; the Internal Revenue Service has a copy of the notification letter that accompanied your check and you can be sure tax examiners will double check your entry. If you can't find the notice, you can check the amount at the IRS Web site.

What if you got the advance payment but discover in filling out your return that you're not eligible for the credit? Some taxpayers might find themselves in this position because the checks were based on 2002 filing circumstances that might have changed the following year. Good news: You don't have to give the money back, so don't enter the amount of your windfall on your return.

And what if your tax situation is reversed? You didn't get the advance payment because your 2002 filing circumstances didn't allow it. But in 2003, you did meet the requirements. Now you can claim the full $1,000 child tax credit on your return.

4. More care costs eligible
If you paid someone to watch your youngster (or any IRS-approved dependent) while you worked, this year's tax return allows you to claim a credit on more of those costs.

The child and dependent care credit can now be as much as 35 percent of IRS-qualified expenses. Previously, it was 30 percent. The expense amount you can use to calculate the credit also has increased. You can count up to $3,000 spent on the care of one person, and up to $6,000 for the care of two or more dependents.

Only lower-income taxpayers are eligible for the maximum credit amount. But the earning threshold has increased from $10,000 to $15,000 so that a few more filers might be eligible for the largest possible credit.

5. Lower capital gains rates
If you didn't sell assets until May 6, 2003, or later, you're in for some good tax news. Under the new tax law, long-term capital gains rates have dropped. For most people, the rate is now 15 percent, down from the previous 20 percent tax rate. If you're in the 10 or 15 percent tax bracket, capital gains now are taxed at 5 percent, rather than the previous 10 percent rate.

Remember, however, that this applies only to assets sold on or after last May 6. Any long-term property -- that is, property held for more than a year -- sold before then will be taxed at the previous 20 percent and 10 percent levels. And if you sell before the year-and-a-day holding period, you'll still face taxes on your short-term gains at ordinary income rates.