How are you affected?
Major points of Tax Relief Act detailed for members

Every working American has heard about the Economic Growth and Tax Relief Act of 2001, which President Bush signed into law June 6. However, many are uncertain how the measure might impact them and their families.

Following are specific points that are most likely to affect MAP members, supplied to the union by Gabriel, Roeder, Smith and Company.

Major non-pension provisions

  • Individual income tax rate reductions - As of last Jan. 1, a new 10% tax rate applies to the first $6,000 of taxable income for single individuals, $10,000 for heads of households, and $12,000 for married couples filing jointly. Starting in 2002, other individual tax rates will be reduced, so that by 2006 the current 28% rate will fall to 25%, the 31% rate to 28%, the 36% rate to 33% and the 39.6% rate to 35%. Also starting in 2006, current limitations on itemized deductions and personal exemptions will be phased out.
  • Child care credit - The current $500 child care credit will be increased to $600 in 2001 through 2004, $700 in 2005 through 2008, $800 in 2009, and $1,000 in 2010 and later. The credit is refundable up to 10$ of earned income in excess of $10,000 in 2001 through 2004 and 15% in 2005 and later. The act permanently allows the child care credit to be claimed against the alternative minimum tax and repeals the alternative minimum tax offset for refundable credits.
  • Marriage tax relief - The standard deduction for married couples filing jointly will be increased to twice the deduction provided to single filers. In addition, income within the 15% tax bracket for married couples filing jointly will be increased to twice that of single filers. Both increases will be phased in years beginning in 2005. The bill also modifies and simplifies the rules related to the earned income credit for married couples filing jointly.
  • Education savings incentives - The act contains many provisions related to educational savings, including: increasing the annual limit on educational IRA contributions from $500 to $2,000; expanding the definition of educational expenses that may be paid tax-free from an educational IRA contributions from $500 to $2,000; expanding the definition of educational expenses; increasing the income phase out range for educational IRA's; allowing private institutions to offer tax-deferred, prepaid tuition plans; extending the exclusion for employer-provided educational assistance to graduate education, plus many other provisions.

Major pension provisions

  • Purchase of service credit in governmental plans - Participants in state or local government defined benefit plans may purchase service credit or repay previous refunds using transfers from 403(b) or 457 plans. This is effective for transfers after Dec. 31, 2001.
  • Rollovers between 547, 403(b), 401(k), and qualified plans - Starting in 2002, rollovers are allowed between 457, 403(b), 401(k), and qualified plans under 401(a). Similarly, rollovers are allowed from an IRA into a 457, 403(b), 401(k) or 401(a) qualified plan. In addition, the direct rollover and withholding rules are extended from distributions from 457 plans; however, amounts distributed from a 457 plan are subject to the early withdrawal tax to the extent the distribution includes amounts attributable to rollovers from other plans. Consequently, 457 plans are required to separately account for such amounts.
  • 457 plan distributions - The special minimum distribution rules applicable to 457 plans are repealed, effective for distributions after Dec. 31, 2001. This provides greater flexibility for 457 plan distributions, including flexibility in determining the date of the first distribution and allowing beneficiaries to change their distribution amount and pattern once begun.
  • Defined benefit dollar limit - The defined benefit dollar limit is increased from $140,000 in 2001 to $160,000 in 2002 and indexed to inflation in $5,000 increments thereafter. For members in private-sector plans, the dollar limit is now actuarially reduced (or increased) according to the rules applicable to general employees in governmental plans (i.e., the limit is reduced for benefits beginning before age 62 and increased for benefits beginning after age 65. The act eliminates the $75,000 floor on the actuarially reduction in the dollar limit for benefits beginning at age 55; however, given the increase in the dollar limit, the age reduced dollar limit at age 55 will be greater than $75,000. Currently, for police officers and fire fighters with at least 15 years of service credit, no actuarial reduction in the dollar limit is required for benefits beginning before age 62. This provision was not changed by the act.
  • 457 plan dollar limit - The dollar limit on 457 plan deferrals will increase form $8,500 in 2001 to $11,000 in 2002, then by $1,000 each year to $15,000 in 2006, and indexed to inflation in $500 increments thereafter. This means that the limits will rise to $12,000 in 2003, $13,000 in 2004 and $14,000 in 2005 before reaching the $15,000 maximum in 2006. Catch-up contributions to SIMPLE plans will be half of those applicable to other plans.

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