In making tax

rate changes retroactive to the beginning of 2003, Congress recognized

that tax withholding has already occurred at the higher rates required

under the prior law.

The new law's

Conference Report states that "taxpayers who have been overwithheld

as a consequence of this (should) obtain a refund of this overwithholding

through the normal process of filing an income tax return, and not through

the payor."

Therefore,

employers and others that withhold taxes should not attempt to "correct"

amounts withheld at the rates required under the law before they could

implement the new withholding rates.

Employees may

adjust their withholding to bring the tax paid closer to the tax owed,

but they may not claim more allowances than they are entitled to, based

on their expected exemptions, deductions and credits.

To avoid an

estimated tax penalty for not paying enough during the year, they may

want to see how much their withholding drops before making further adjustments.

The new law

extended the 10 percent rate to cover the first $7,000 of taxable income

for single persons, $14,000 for married couples. It also lowered the tax

rates above 15 percent to 25, 28, 33 and 35 percent. This is a drop of

two percentage points for each rate except the top one, which went down

3.6 points.

The new law

also raised the standard deduction for married couples to $9,500 and extended

their 15 percent tax rate to $56,800 of taxable income. Each figure is

double the number for single taxpayers. The changes reduce the "marriage

penalty" ­ the difference between the tax couples pay and the

amount they would have paid as two single persons.

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