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When:
January 01, 2001

Who it Affects:
All tax payers
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2001 Tax Law Changes
New rates for everyone

Tax rates drop modestly in 2001.

Most taxpayers already have received a big break on their taxes thanks to the creation of a 10% tax bracket for the first layer of income. Retroactive to the first of this year, this new bracket affects the first $6,000 in income for singles, $10,000 in taxable income for heads of households and $12,000 for married couples. The 15% bracket takes hold once those levels are reached.

The 10% rate is responsible for the first-year rebate checks that were mailed out to taxpayers starting this summer. The rebates were $300 for most singles and $600 for most married couples who file joint tax returns.

But the long-term rate cuts hold more promise for individual taxpayers. The 10% rate takes effect this year along with a half-percentage point drop in all rates other than the 15% bracket. The other lower rates will be phased in over five years. Once they are, the most common 28% rate will drop to 25%; the 31% rate falls to 28%; the 36% rate falls to 33%; and the top rate will drop from 39.6% to 35%.

Heres how the rates work in 2001 and beyond.
 2002 tax rates and beyond move down from 2001
Calendar year 15% rate reduced to28% rate reduced to 31% rate reduced to 36% rate reduced to 39.6% rate reduced to
2001*10%**27.5%30.5%35.5%39.1%
2002-200310%** 27%30%35%38.6%
2004-200510%**26%29%34%37.6%
2006 and thereafter 10%**25%28%33%35%


* For the first $6,000 of income for single filers, $10,000 for heads of households and $12,000 for married couples filing jointly. 15% bracket applies above those amounts. (In 2008, these income levels rise to $7,000 or singles and $14,000 for married couples. Heads of households will see no change).