Working Families Tax Relief Act of 2004

As you probably have heard, Congress on Sept. 23 passed the Working Families Tax Relief Act of 2004. The act extends the life of several tax breaks for individuals and businesses created by earlier legislation but that expired or were scheduled to expire at the end of the year. 

Here's a look at the main provisions of the new tax law. The extensions of AMT relief may have the biggest impact on your tax liability.

INDIVIDUALS

Extensions through 2005 for expired provisions:
§ Alternative minimum tax (AMT). Some regular income tax credits, including the Child and Dependent Care, Hope, and Lifetime Learning credits, continue to also be allowed for AMT purposes.

§ Archer Medical Savings Accounts (MSAs). These can continue to be created, provided the number of accounts doesn't exceed statutory limits.

§ Deductible educator expenses. The above-the-line deduction for up to $250 of qualifying classroom expenses continues to be available for qualifying elementary and high school educators.

Extension through 2005 for provision scheduled to expire after 2004:
§ AMT. For single and head of household taxpayers, the exemption amount, previously scheduled to go down to $33,750 in 2005, will remain at $40,250. For those filing jointly, it will stay at $58,000 instead of dropping to $45,000. And for married filing separately, it will remain at $29,000 instead of going down to $22,500.

Extensions through 2010 for provisions scheduled to expire after 2004: 
§ 10% rate bracket. The top of the bracket for single and married filing separately, previously scheduled to go down to $6,000 in 2005, will remain at $7,000. For married filing jointly, it will stay at $14,000 instead of dropping to $12,000. (The $10,000 amount for heads of household wasn't scheduled to change.) The tops of the 10% bracket for all filers also will be indexed for inflation.

§ Marriage "penalty." The 15% bracket for married filing jointly, previously scheduled to go down to 180% of that for singles, will remain at 200%. The standard deduction for married filing jointly will also stay at 200% instead of dropping to 174% of that for singles. 

§ Child credit. Previously scheduled to drop to $700 in 2005, this credit will remain at $1,000. 

Postponement until 2006:
§ Phaseouts for the Electric Vehicle credit and the deduction for clean-fuel vehicles. The credit and deduction, previously scheduled to phase out starting in 2004, won't begin to phase out until 2006. (This also applies to businesses.)

New provision effective starting in 2005:
§ Definition of "qualifying child." The act establishes a three-prong (relationship, residence and age) test to determine whether someone is a qualifying child for the purpose of a variety of tax breaks, though different age limits will continue to apply as under prior law.

BUSINESSES

Extensions through 2005:
§ Credits. Those extended include the Research and Development, Work Opportunity, Welfare-to-Work, and Energy Produced From Renewable Resources credits.

§ Deductions. These include costs for environmental remediation, as well as charitable contributions of computer technology and equipment for educational purposes.

NOTE: The 50% bonus depreciation, scheduled to expire Dec. 31, 2004, has not been extended by this act.

Please contact us for a fuller explanation of specific provisions and how you can best take advantage of them. 

Find out how our Boston Consulting, Accounting and Tax experts can add value to your business. Email us or call us at 1 (888) 875-9770.

related links