Federal Individual Income Tax Thresholds for Lower Income Families in 2003

CRS Report for Congress
Federal Individual Income Tax
Thresholds for 2003
Gregg A. Esenwein
Specialist in Public Finance
Government and Finance Division
One commonly accepted principal of tax fairness reflected in the U.S. tax code is
that families at the low end of the income spectrum, especially those near the poverty
threshold, should not be subject to the federal income tax. Since the major components
of the federal income tax that govern these tax thresholds are indexed for inflation,1
nominal dollar federal individual income tax thresholds change every year. This report
presents the tax thresholds for various families for tax year 2003. This report is updated
on an annual basis.
The major structural components of the tax code which influence the income levels
at which various households become subject to the federal income tax include the
standard deduction, the personal exemption, the child tax credit, and the earned income
tax credit (EITC); each of these items increases the level at which a family becomes2
Consider the case of a married couple with one dependent child under the age of 17.
In 2003, the standard deduction for a married couple filing a joint return is $9,500, each
personal exemption is worth $3,050, and the child tax credit is $1,000 for each qualifying
child. This family would reach the basic income tax threshold for their filing status and
family size at an income level of $18,650 (standard deduction of $9,500 plus three
personal exemptions of $3,050 each). Income under this amount would not be subject to
tax while any income over this amount would be taxed.

1 For more information on the structural components of the federal income tax and indexation see
CRS Report RL30007, Individual Income Tax Rates: 2003, by Gregg A. Esenwein. July 2003.
2 The child and dependent care tax credit might also influence a household's federal income tax
threshold but it is not addressed in this report because it is not widely used by households at the
lowest end of the income spectrum.
Congressional Research Service ˜ The Library of Congress

Although income over this amount is subject to tax, the child tax credit offset this
couple's first $1,000 of income tax liability .
At this point the EITC would come into play. The maximum EITC for 2003 for
families with one child is $2,547. The maximum credit begins to phase out for families
filing joint returns with incomes above $14,730 and is reduced to zero for families whose
incomes exceed $30,666. The income tax threshold for the family in this example is the
point at which the EITC is just enough to offset any pre-EITC income tax liability so that
the net tax liability of the family is zero. In the case of a couple with one dependent child
filing a joint return the income level is $29,889. At this income level, the family's pre-
EITC income tax liability is $124 and the family's EITC is also $124. The two offset each
other and the family does not have any net income tax liability
At incomes below the income tax threshold, the EITC is large enough that it more
than offsets income tax liability and the family gets a refund for the excess (subject to
certain restrictions). At income levels above the income tax threshold, the EITC has been
reduced to the point that it no longer fully offsets the entire income tax liability and the
family ends up with a net income tax liability. The income tax thresholds for selected
households in 2003 are shown in the Table 1.
Table 1. Federal Individual Income Tax Thresholds for 2003
Single Individuals (no children)
Not eligible for the EITC $7,800
Eligible for EITC$9,290
Married Couples
No children (not eligible for the EITC)$15,600
One child$29,889
Two children$39,700
Three children$49,417
Four children$59,133
Heads of Households
One child$26,489
Two children$33,326
Three children$42,533
Four children$52,250
Source: CRS.
Note: Assumes all children are eligible for the child tax credit.