Masonry Magazine February 1970 Page. 10
TAXES
By MIRIAM, McD. MILLER
TAX REFORM ACT OF 1969
The repercussions from this new Tax Act will be affecting all taxpayers in varying degrees over the next four years. The Tax Reform Act is not only lengthy and technical but it covers numerous aspects of the tax laws. This article is an attempt to report on some of the highlights of the new Act but is by no means a complete review of the Act.
While it is true that this Act will provide some tax relief in the future, we will first have to pay our 1969 taxes. There is no way of lessoning the impact of the full 10% surcharge that must be applied to everyone's 1969 tax bill.
EXEMPTIONS
Over a four year period (1970-1973), the personal and dependency exemption will be increased from $600 to $750. Thus, for 1969, the exemption remains $600. For 1970, it will be $625; for 1971, $650; for 1972, $700; and for 1973, $750. In 1970, while the value of the exemption for calendar year taxpayers will be $625, withholding for the first six months of 1970 will be based on a $600 exemption and for the last six months on a $650 exemption. It might be noted that during these years as the personal exemption is increasing, the amount of the low income allowance (which is explained later) is gradually decreasing.
STANDARD DEDUCTION
Over a three year period, beginning in 1971, the percentage standard deduction is increased from its present level of 10% (with a maximum of $1000) to 15% (with a maximum of $2000.) Thus, for 1971, the applicable percentage is to be 13% (with a maximum of $1500); in 1972, 14% (with a maximum of $2000); and finally for 1973 and thereafter, 15% (with a maximum of $2000.)
LOW-INCOME ALLOWANCE
In an attempt to remove poverty-level taxpayers from the tax rolls, the Act provides for a new flat-amount deduction-low income allowance. The amount of this allowance is to be $1100 in 1970, reducing in 1971 to $1050, and in 1972 and thereafter to be $1000. However, in the first two years (1970-1971) of the low income allowance, the benefit of the allowance is phased out (based on a formula) as adjusted gross income increases. The purpose of the phase-out is to minimize the loss of revenue resulting from the low income allowance.
Another feature of this anti-poverty aspect of the Act is to allow a family that has been abandoned by one of the parents to take the full low income allowance-even though only one parent files a return.
MAXIMUM TAX RATE
The Act provides a new maximum marginal tax rate of 50% on earned taxable income (ETI) for taxable years beginning after 1971. For 1971, the maximum marginal tax rate is to be 60% instead of 50%. This provision applies only to carned income. Earned income includes wages, salaries, professional fees or compensation for for personal services. It does not include lump-sum distribution from an employee plan or deferred compensation. The computation of this maximum marginal rate is not simple. First, it is the earned taxable income that is considered the first income earned for purposes of applying the regular graduated tax rates. Other taxable income (dividends, rents, etc.) is considered the last income carned. Only taxpayers who have earned taxable income that exceeds the 50% tax bracket will qualify for this alternative computation. For example, a single individual with earned taxable income of $40,000 in 1972 will qualify because his ETI exceeds $38,000, the lowest amount on which the tax rate exceeds 50%. A married couple with earned taxable income of $55,000 in 1972 would qualify because $52,000 is the lowest amount on which the tax rate would exceed 50%.
SINGLE INDIVIDUALS
As a result of the new Tax Act, there will be four rate schedules: (1) Unmarried individuals (other than surviving spouse and head of household); (2) head of household; (3) married individuals filing joint returns and surviving spouse: (4) married individuals filing separate returns. The new rate schedule for single persons becomes effective after 1970. The rates for these taxpayers will be lower than they have been. The old rate schedule for single persons will remain but it will be applicable only to married individuals filing separate returns and for estates and trusts. There will also be a new rate schedule for heads of households after 1970 that will cause these taxpayers to be taxed at a rate mid-way between the single taxpayer and married taxpayers filing joint returns. There is to be no rate change for married taxpayers filing either separate or joint returns.
WITHHOLDING TABLES
By now you may have received copies from the IRS of the percentage method withholding tables prescribed by the new Act. These tables will incorporate for the period of January-June 1970, the $1,100 low income allowance (with the phase out), 10% standard deduction (up to $1000); $600 personal exemption, and 5% surcharge. For the period of July-December 1970, the tables will incorporate: $1,100 low-income allowance (with the phase out). 10% standard deduction (up to $1000) and $650 personal exemption.
The Act authorizes the IRS to permit an employer to use any withholding method which results (more or less) in the same amount of withholding as under the regular percentage and wage-bracket methods.
Another aspect of the Act that will affect an employer's withholding methods is that which allows an employee to claim an additional withholding exemption for each $750 of estimated itemized deductions in excess of 15% of his estimated wages. This liberalized withholding allowance applies to wages paid after December 31, 1969. Previously, an additional withholding allowance was permitted only for each $700 of itemized deductions above a combined base level-10% of the first $7500 of estimated wages plus 17% of any remainder. Under the prior law estimated itemized deductions were limited to actual itemized deductions for the previous year. Under the new rule an employee can (Continued on page 28)