Rate Reduction Credit

One of the ways the 2001 tax relief eases your tax burden is by creating a new 10% tax bracket, which represents a 5% rate cut below the old 15% tax bracket.

In simple terms, everyone who used to see some of his or her income taxed at the 15% tax rate now sees some or all of that income taxed at 10% instead. If you are married filing a joint return, the new 10% bracket applies to the first $12,000 of your taxable income. That's a tax savings of 0.05 x 12,000, which is $600. If you are single, the new 10% bracket applies to the first $6,000 of your taxable income. That's a tax savings or 0.05 x 6,000, which is $300. Different rules apply to the other filing statuses.

If $300 or $600 seems like a familiar number to you, it may be because you received a check for that amount from the U.S. government in the fall. This amount represents an advance on your 2001 tax savings.

Based on the tax rebate check amount you enter in this estimator, we will figure out if you received the full amount to which you are entitled based on your 2001 income. If it appears that you did receive the full amount, you don't qualify for a rate reduction credit. However, if you did not receive the full amount to which you're entitled, the rate reduction credit is the way that you can make up the difference.

For example, suppose you are married filing a joint return and had $40,000 of taxable income in 2001. You are entitled to the full $600 in 2001 tax savings from the new 10% tax rate bracket. However, if your tax rebate check was only $500, you're entitled to a $100 rate reduction credit on your 2001 tax return to make up the difference. The rate reduction credit makes sure you get the full benefit of the 10% tax rate bracket.