When the Economic Growth and Tax Relief Reconciliation Act of 2001 was signed into law, it created a new 10-percent regular income tax bracket. This 10-percent rate bracket applies to the first $6,000 of taxable income for single individuals and married individuals filing separately, the first $10,000 for individuals filing as heads of household, and the first $12,000 for married couples filing jointly, and for qualifying widows and widowers.

To adjust for this new tax rate and to accelerate the expected economic growth it will produce, the Act provides a credit to taxpayers. Most taxpayers received this credit in the form of a check issued by the Department of Treasury. Those who timely filed their 2000 tax returns should have received their advance payments by October 1, 2001. These advance payments were calculated using 2000 income tax information. However, when filing 2001 tax returns, taxpayers will use their 2001 income tax information and a worksheet provided in the instruction booklets to calculate the rate reduction credit amount. The credit will be the smallest of the maximum allowable amount for your filing status, 5 percent of your 2001 taxable income, or the amount of your total tax after non-refundable credits. The maximum amount of the rate reduction credit is $300 for individuals filing as single or married filing separately, $500 for heads of household, and $600 for individuals filing married filing jointly and as qualifying widow(er). The amount of any advance payments that you received or were entitled to receive (but were offset against your tax or other legal obligations) will be subtracted from the actual credit and any remaining amount will be claimed on the 2001 tax return.

The rate reduction credit will be claimed on Form 1040 (PDF), line 50, Form 1040A (PDF), line 32, and Form 1040EZ (PDF), line 7. However, certain individuals are not eligible to receive the rate reduction credit. You cannot claim the credit if any of the following apply:

• Your taxable income is zero for 2001.
• You received an advance payment of your 2001 taxes that is equal to the maximum allowable amount for your filing status. The maximum allowable amount is:
• Single or married filing separately — $300
• Head of household — $500
• Married filing jointly or qualifying widow(er) — $600
• You, or your spouse if filing jointly, can be claimed as a dependent on another person's return.

For additional information, please refer to the instruction booklet of your 2001 income tax return.

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