Federal Tax Cuts Enacted

Written By: Attorney Jeffrey A. Marshall, CELA*

  With the help of a tie breaking vote by Vice President Cheney, Congress has passed the Jobs and Growth Tax Relief Reconciliation Act of 2003.  Only time will tell if this most recent tinkering with the tax laws will result in "jobs and growth" for Americans. However, much of the tax "relief" will be immediate, and in some cases, retroactive. 

Some of the provisions of the new law include:

Reductions in Income Tax Rates  Income tax brackets are immediately reduced as follows:

o       38.6% lowered to 35% 

o       35% lowered to 33%

o       30% lowered to 28%

o       27% lowered to 25%

o       The 10-percent bracket is expanded from $12,000 of taxable income to $14,000 ($6,000 to $7,000 for single individuals). 

Reduction in the Rate of Tax on Capital Gains The tax rate on capital gains has been reduced so that higher income individuals will pay 15% on long term gains rather than 20%.  Taxpayers in the 10% and 15% brackets will pay only 5%.  The new rates apply to assets sold or exchanged and installment payments received after May 5, 2003 . 

Reduction in the Rate of Tax on Dividends  Most dividends are to be taxed as net capital gains at the new, lower capital gains rates.  This effectively reduces the highest rate of tax on most dividends from 38.6% to 15%. 

The tax rates on dividends and capital gains are now down to levels that were last seen during the Great Depression.  The lowering of these dividend and capital gains rates does not, however, apply to IRAs, 401Ks and other retirement accounts.  Withdrawals from retirement accounts will continue to be taxed at higher ordinary income levels, even to the extent they represent dividends and capital gains.   

Business Investment Stimulus The bill increases the amount of investments that can be immediately deducted by small businesses under Code Section 179 from $25,000 to $100,000 and provides some other increased deductions for businesses. 

Marriage Penalty Relief and Expansion of the Child Tax Credit The law reduces, to some extent, the marriage penalty which causes a married couple's tax liability to be greater than their combined liabilities would be as single filers.  The tax credit for children increases to $1,000 per child.  To give a quick stimulus to the economy, the increased child credit of up to $400 per child will be paid out to families in advance, beginning in July.   

$20 Billion in Assistance to the States The tax act provides $20 billion dollars in desperately needed tax assistance to the States.  $10 Billion of this relief is targeted to Medicaid. The States will get a temporary 2.95 percentage point increase in rate of federal Medicaid matching funds (FMAP).  In addition, states will receive $10 billion to be used to provide essential government services and to cover the state's cost of complying with unfunded federal mandates.

The tax act, which was finally approved by Congress, will probably provide more immediate stimulation of the economy than the measures initially proposed by the President. In particular, the $20 billion in state assistance should have a strong effect.

In order to keep down the budgeted cost of the tax act, many of its provisions are temporary and utilize the bizarre "phase in - phase out" structure that has been familiar of late. (What happened to promised tax simplification?) It is anticipated that the ultimate cost of the tax act will be much greater than the budgeted $350 billion figure since most observers assume that the temporary cuts will become permanent

Attorneys Parker and Kron Teach Lawyers About Nursing Home Issues

Attorneys Matthew Parker and Kathy Kron of Marshall, Parker & Associates' have been named to the faculty for an upcoming series of courses entitled Representing an Individual Entering a Nursing Home.  The Pennsylvania Bar Institute's day-long program for lawyers will take place between May 30^th and June 27^th at six different locations throughout the state.  Matthew Parker will be teaching a session in Pittsburgh entitled "Medicaid" on May 30^th, while Kathy Kron will be teaching sessions on "Understanding Veterans Benefits" in Philadelphia , Mechanicsburg, and Scranton . 

Although these educational programs are primarily intended for lawyers, they are open to the public.  For more information, contact the Pennsylvania Bar Institute at 800-247-4724 or online at http://www.pbi.org/Courses/SpecificCourses/nhome.

Does Your Club Or Organization Need A Speaker?

If you are interested in having an attorney or geriatric planning specialist from

The Elder Law Firm of Marshall, Parker & Associates' speak to your group, or at an upcoming event, please contact

our Public Education Coordinator,  Melissa Bottorf

at mbottorf@paelderlaw.com or 1-800-401-4552

Looking for Higher Interest Rates? Consider Savings Bonds!

Written By: Attorney Jeffrey A. Marshall, CELA*

U.S. savings bonds have been around since 1935.  But, this old time investment has new allure in today's low interest rate environment.  Savings bonds offer an attractive investment alternative for cautious savers who are disappointed with the returns being offered on Certificates of Deposit and who don't like the heavy surrender charges attached to the higher-rate fixed annuities being sold by many banks.

Most of the over 50 million Americans who own savings bonds hold Series EE bonds.  Series EE bonds come in eight different denominations, from $50 to $10,000. These bonds are issued at ½ face value.  Interest is based on prevailing market rates and the variable rate changes every six months. Series EE bonds purchased in May 2003 earn initial interest of 2.66%. This rate looks pretty good compared with bank certificates of deposit and other fixed rate investments currently available to conservative savers. 

Government I bonds are another, perhaps even more attractive, alternative.  The "I" stands for "Inflation-index." I bonds purchased in May are earning an initial mouth- watering interest rate of 4.66%.  Part of this rate is permanently fixed, and part will vary with inflation over the life of the investment. This means they offer the saver some protection if interest rates go up.  I bonds are sold in denominations from $50 to $10,000 and can earn inflation adjusted interest for up to 30 years.  Purchases are limited to $30,000 per year. 

Newly issued Series EE and I bonds can be cashed any time after 12 months. Bonds with issue dates before February 2003 can be cashed anytime after 6 months. In addition to being unable to cash the bonds for a year, the investor will lose three months' worth of interest if the bond is redeemed before five years. For example, if you redeemed a bond after 24 months, you would receive only 21 months of earnings.  For these reasons, investors should view savings bonds as a long-term investment.

An additional attraction of savings bonds is the exemption of their interest from state and local income tax.  Federal income tax can be deferred for up to thirty years until the bond is cashed in. I bonds (and some EE bonds) may also be eligible for tax benefits upon redemption when used to pay for qualified education expenses.

Savings bonds have a lot to offer seniors and other conservative investors. Investors can buy savings bonds at their local bank, but they may need to ask about this ultra-safe alternative investment, since banks don't earn much from the sale of government bonds.  

Investors can also purchase savings bonds directly from the government over the internet.  Setting up an account is easy, and purchases can be deducted from an existing bank account. For more information, and to set up an account, visit the government's Treasury direct site at www.treasurydirect.gov.   

Misconception #8:

If you are married, they take half your assets when you go in a nursing home

  Here is the next installment in our discussion of some of the most prevalent misconceptions about Medicaid and the rules for payment of nursing home costs. If you would like to read past Medicaid Misconceptions, go to our website at:  www.paelderlaw.com and choose "Newsletters" on the left hand side of the screen.

Misconception # 8:

If you are married, they take half your assets when you go in a nursing home.

The Truth: The bad news is that the rules are much more complicated than that! The good news is that, almost always, with proper planning, much more than half of the assets of a married couple can be protected.  Often ALL of the assets can be protected, if you know what you are doing. 

Both Federal and State laws give a lot of legal rights to the spouse who is not in a nursing home.  These laws and regulations are intended to avoid the impoverishment of the at-home spouse.  They can be used to protect both the assets and the income of the couple from being lost to the cost of nursing home care. The rules are complicated, but this is one time that complications are good - because they mean that married couples don't have to lose half of what they own to nursing home costs. 

Did you know. past issues of the Elder Care Law Alert are available on our website at:

www.paelderlaw.com/news.html

  "Understanding the Rules: Medicaid  Payment for Long Term Care"

A Free Seminar Presented by

Marshall, Parker & Associates'

 

Seminar Dates & Locations

Thursday, June 5^th, 2003 at 6:30 PM

The Woodlands, Wilkes-Barre

Saturday, June 14^th at 10:00 AM

The Radisson at Lackawanna Station, Scranton

 

Reservations are suggested, but not required.  SIGN UP ONLINE or call 1-800-401-4552 for more information or to reserve your spot for one of these seminars!

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*Attorney Marshall is certified as an Elder Law Attorney by the National Elder Law Foundation under authorization from the Pennsylvania Supreme Court