In recent weeks we have received a number of questions about the correct use of income tax rates in examples in publications intended for use this year.
While there were rate reductions for 2001 beginning July 1, they were not effective from that point forward. In other words, if a taxpayer was in the 28% bracket on January 1 and earned $25,000 in the first half of the year and the rate was “reduced” to 27% on July 1, this does not mean that the money earned after that time is taxed at 27%. The blended rate applicable for the entire year of 2001 is 27.5%. The same is true of the 39.6%, 36%, and 31% brackets. The correct rates for 2001 are 39.1%, 35.5%, and 30.5%. See the IRS publication reproduced below with Web site reference for more information.
Note that any illustrations of gifts to be completed in 2001 must use these rates when referring to tax savings. For example, an illustration of a $1,000 gift completed in 2001 should refer to its deductibility against a marginal rate of 27.5% with a tax savings of $275. A reference to a 27% rate and savings of $270 will not be valid until next year when the rate for 2002 will be 27%.
For 2001, there is no 28% rate and there is no 27% rate. The only rate effective for 2001 for the purposes of tax calculations and examples is 27.5% or whatever other marginal rate specified in the table below is appropriate. All Sharpe publications have been revised to use applicable rates for 2001. If you have other questions regarding tax rates for 2001, check with your accountant or other tax counsel.