Washington Reduced income tax rates mean workers will see more money in their paychecks beginning in July, but it will be next year before they get back taxes overpaid in the first half of 2003 under the new retroactive rate schedules.
Parents eligible for the $1,000 child tax credit will get an advance refund this summer.
The new law retroactively reduces income tax rates back to Jan. 1. It drops the middle rates by 2 percentage points and the top rate by 3.6 percentage points. The Treasury Department has begun instructing employers to start withholding less taxes by July 1 to reflect the lower tax rates, a broader 10 percent bracket and tax breaks for married couples.
Taxpayers will get back taxes overpaid during the first half the year -- before Congress enacted the law -- when they file their 2003 tax returns next year.
Tax professionals caution employees not to tinker with W4 forms to recoup the money faster through smaller withholdings. Taxpayers who withhold too little this year could owe the Internal Revenue Service on April 15.
"You're playing with fire a little bit if you do that," said Jackie Perlman, senior tax research analyst at H&R Block.
Parents, who otherwise would have to wait until next year to claim an increased child tax credit, will get a check worth up to $400 per child if they qualified for the credit last year. Parents who had their first child in 2003 will have to wait until next year to claim the benefit.
Parents will get a letter from the IRS a few days before receiving the checks, which will be mailed on July 25, Aug. 1 and Aug. 8.
Low-income taxpayers who did not qualify for the full $600 credit last year will not get the advance rebate. Higher income taxpayers who made too much to qualify for the $600 credit may find next year that they qualify for a partial credit.