Tax Relief Reconciliation Act of 2001

DEPENDENT CARE CREDIT INCREASE

On Saturday, May 26, 2001,Congress Passed the "Economic Growth and Tax Relief Reconciliation Act of 2001. Included in this bill is an increase in the dependent care tax credit under Code Section 21. The current code provides a tax credit for up to 30 percent of qualifying employment-related dependent care expenses. Effective for tax years beginning after December 31, 2002, a taxpayer may take into account $3,000 (increased by the Act from $2,400) of employment related expenses for one qualifying individual, and $6,000 (formerly $4,800) for two or more qualifying individuals. The Act also increases the percentage for determining the credit to 35 percent. The tax credit begins to phase out at an adjusted gross income of $15,000. Unfortunately, the Act did not increase the current $5,000 limit for dependent care through the Cafeteria Plan. Individuals can continue to claim up to $5,000 for joint returns and $2,500 for married couples filing separate returns under the Cafeteria Plan and anything over the $5,000 limit can be claimed as a tax credit up to the $6,000 cap.

401 (K) The Act permits rollovers among 401 (k) plans, 403 (b) annuities, and other plans, including rollovers of after tax contributions from a qualified retirement plan to a traditional IRA or to another plan. The Act also increases the compensation limitation from $170,000 to $200,000 and the deduction limit for 401 (k) profit sharing plan to 25% from 15%.

457 (b) This is a plan sponsored by State and Local Governments and Tax-Exempt Organizations, i.e., Mississippi Deferred Compensation. The Act increase the amount of deferral from $8,500 or 33 1/2 of includible compensation to $11,000 or 100% of includible compensation. Also, funds can be rolled over to IRA and other qualified plans.

IRAs The contribution limits for both traditional and Roth IRAs will increase from the current $2000 annual limit to $5,000 ($3,000 for 2002 through 2004; $4,000 for 2005 through 2007; and $5,000 for 2008. In addition, annual cost-of-living adjustments in $500 increments for taxable years beginning after 2008.

New rollover options include after-tax rollovers of after-tax employee contributions to other qualified plans or IRAs.

EXPIRATION OF ACT

Congress included a "sunset" feature in the Act. After December 31, 2010 the entire Act will expire and be replaced by existing law. Conventional wisdom is that a future Congress will be politically obliged to extend much of the Act.

REIMBURSED CHECK PICK UP

Please remember checks picked up by someone other than yourself must be pre-arranged by completing an authorization form.

We will be closed July 4th in observance of Independence Day.