$500 Per Child Tax Credit
- For families with children under age 17.
- $400 credit in 1998; $500 credit in 1999 and thereafter.
- No mandatory deposit requirement.
- Partially refundable against payroll taxes through enhanced EIC. (that’s the Earned Income Credit)
- Income phase-outs begin at $110,000 for couples; $75,000 for singles.
- Modified Hope Scholarship (Years 1-2: 100% of first $1,000 of tuition; 50% of second $1,000; Years 3-4: 20% of $5,000 of tuition).
- State prepaid tuition plans receive tax-free treatment; 10 percent penalty on amounts not used for tuition, books, room and board.
- Education IRAs – Contributions of up to $500 per child (income limits begin at $95,000 for singles and $150,000 for couples.
- Penalty free withdrawals for education from retirement IRAs.
- Extension of employer provided education assistance for three years.
- Repeal of section 501(c)(3) cap on bonds for new construction.
- Deduction for computer donations to schools.
- Raise the cap for small issue bond to $10 million for school construction.
Individual Retirement Accounts
- Raise the income limits on front loaded IRAs to $10,000 for couples and $5,000 for singles in 1998, 2002, 2003, 2004 until current law thresholds are doubled to $50,000 for singles and $80,000 for married couples.
- Creates a new back loaded IRA in which contributions are not tax deductible, but withdrawals are tax-free if account is held for at least five years and account holder is at least age 59½. Income limits begin at $95,000 for singles and $150,000 for married couples.
- Allows penalty free withdrawals for first time home purchase.
- Allows nonworking spouses to save full $2,000 annually in IRA regardless of working spouses’ pension plan (income limits begin at $150,000).
- A top rate of 20% for investments held for at least 18 months (12 months if investment was sold before July 29, 1997).
- An 18% rate for assets purchased after 2000 and held at least five years.
- A top rate of 10% for 18 month assets and 8% for five year assets for joint filers with incomes less than $41,200 (in 1998).
- A $500,000 exclusion for home sales for joint filers, $250,000 for single filers.
- Effective for sales after May 6, 1997.
Estate and Gift Tax
- Family farm/small business exclusion of $700,000 effective 1998 (total = $1.3 million).
- Unified credit phases up to $1 million by 2007 (family farm/small businesses remain at $1.3 million).
- Reinstate the home office business deduction.
- Accelerate the phase in of the self-employed health insurance deduction.
Alternative Minimum Tax
- Relief from the depreciation provisions of the AMT (that’s the Alternative Minimum Tax) to promote economic growth and job creation (conforms depreciation lives).
- Small business exemption from AMT.
Airline Ticket Tax
- Lowers the current 10% ticket tax to 7.5% over three years (the rate will be 9% in October 1997) and creates a flight segment fee.
- Imposes a $12 arrival and departure fee on international flights.
Tobacco Taxes (included in the spending bill)
- 10 cent per pack increase in 2000 and 2001 (increasing current tax to 34 cents per pack).
- 15 cent per pack increase in 2002 (bringing tax to 39 cents per pack).
Not included, was the deemed liquidation rule for C corporations electing S status.
There’s a lot included in this bill and we will be providing you with more information as the year progresses. But if you have any questions about the new law – or how it may affect you – call us now.