SUMMARY OF NEW TAX LAW WHICH BENEFITS SAVERS AND INVESTORS!

On May 23rd, Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003. The new law has good news for taxpayers, and some of the most favorable and important changes are retroactive to January 1, 2003. The biggest beneficiaries under the new law are married couples with children under age 17, investors, high-income individuals, and small business owners.

However, all the favorable changes are subject to so-called sunset rules. This means that the tax reductions will expire in future years unless Congress takes further action.

Future Rate Cuts Accelerated Into 2003. The individual income tax rate cuts that were included in the 2001 tax legislation, but delayed until 2004 and 2006 are accelerated into 2003 by the new law. Salaried employees will see their paychecks increased when new tax withholding tables take effect in June. These are the rate reductions:

Old Rate	New Rate
27%	25%
30%	28%
35%	33%
38.6%	35%

The existing 10% and 15% rates remain unchanged. Furthermore, under a sunset rule, rates will return to the pre-2001 Tax Act rates of 15%, 28%, 31%, 36%, and 39.6% after 2010 unless Congress takes further action. The 10% rate would disappear entirely with 15% becoming the lowest rate.

Bigger 10% Bracket. The new law widens the 10% rate bracket effective back to January 1, 2003. The 10% bracket is expanded by $2,000 for married individuals who file jointly ($0 to $14,000 versus $0 to $12,000 under prior law). The bracket is now $1,000 wider for single filers and married individuals who file separately from their spouses ($0 to $7,000 versus $0 to $6,000 before). This means more of your income will be taxed at the lowest 10% rate. However, this break was not extended to those who use head of household filing status (the 10% bracket continues to cover the first $10,000 of taxable income as before).

Unless Congress takes further action, these expansions of the 10% rate bracket will expire after 2004.

Major Relief for Married Taxpayers. The 15% bracket for those who file jointly is now twice as wide as the 15% bracket for single filers. This means the 15% bracket for joint filers now extends to taxable income of $56,800 (up from the old-law figure of $47,450).

All these favorable changes will last only for 2003 and 2004 unless Congress takes further action.

The New and Improved 2003 Federal Income Tax Rate Structure. This table summarizes the taxpayer-friendly new rules:

Tax Bracket	Single	Joint	Head of Household	Married Filing Separately
10%	$0-7,000	$0-14,000	$0-10,000	$0-7,000
15%	$7,001-28,400	$14,001-56,800	$10,001-38,050	$7,001-28,400
25%	$28,401-68,800	$56,801-114,650	$38,051-98,250	$28,401-57,325
28%	$68,801-143,500	$114,651-174,700	$98,251-159,100	$57,326-87,350
33%	$143,501-311,950	$174,701-311,950	$159,101-311,950	$87,351-155,975
35%	$311,951 and up	$311,951 and up	$311,951 and up	$155,976 and up
Standard deduction	$4,750	$9,500	$7,000	$4,750

Child Credit "Kicked up a Notch" to $1,000. For 2003 and 2004, the tax credit for each under-age-17 dependent child, stepchild, foster child, or grandchild is raised to $1,000 (up from only $600 for 2002). As under prior law, the credit is still subject to phase-out beginning at adjusted gross income of $110,000 for joint filers, or $75,000 for unmarried individuals.

Unless Congress acts, the $1,000 child tax credit will fall back to $700 in 2005.

Alternative Minimum Tax Relief. For 2003 and 2004, the alternative minimum tax (AMT) exemption for joint filers goes up by $9,000 (to $58,000 versus only $49,000 under prior law). For singles and heads of households, the exemption rises by $4,500 (to $40,250, up from $35,750). For those who use married filing separate status, the exemption also increases by $4,500 (to $29,000 compared to the old-law figure of $24,500). These higher exemption amounts are supposed to prevent all of your tax savings from being consumed by the AMT.

However, unless Congress takes further action, the exemptions for 2005 and later years will fall back to $45,000, $33,750, and $22,500 respectively.

Dividends Now Taxed at Only 15%. Dividends paid on stocks held in taxable accounts had been taxed as "ordinary income."

To be eligible for the new, drastically reduced rates on qualified dividend income, you must hold the stock on which the dividends are paid for more than 60 days during the 120-day period that begins 60 days before the ex-dividend date (the last date on which shareholders of record are entitled to receive the upcoming dividend). If you fail this test, your dividends are taxed at your regular rate (up to 35%). Also, a slightly higher holding period applies to preferred stock.

The dividend break has a sunset rule too. Unless Congress acts, dividends received in 2009 and beyond will once again be taxed at your regular rate.

Long-term Capital Gains. Gains from sales after May 5, 2003 will be taxed at no more than 15% (down from 20% under prior law). Those in the 10% or 15% tax rate brackets will pay only 5% on long-term gains from sales after May 5, 2003. (In 2008, the rate will be zero percent, but just for that one year.)

The sunset rule for capital gains, unless Congress acts, will once again revert to the "old rules" in 2009 and beyond.

This is a summary of the basics of the new tax law. It does not cover all the details for individual tax returns.

GILICO and its agents or representatives do not give tax, legal or accounting advice. Please consult your own attorney, accountant or tax advisor to determine the suitability of any life insurance, long-term care or annuity policy for your own situation.

June 9, 2003