New Tax Law Impacts All, But Wealthier Still Fare Best.

YES, the rumors are true. Most of the new tax cuts do go to higher-income people. Among the scraps, there s a little something for moderate earners and almost nothing for the working poor.

Congress voted to cancel every one of these tax cuts in 2011, as a way of hiding their massive long-term cost. In real life, some will go while others stay. Here s the rundown for now:

Tax rates. If you re in the 28 percent bracket or higher, your tax withholding can drop as early as July 1. That s to cover your cut in income-tax rates this year. Each of the four upper tax brackets has been sliced by 1 percentage point.

Between now and 2006, the middle three brackets drop by 3 percentage points each. The top bracket gets the biggest cut down 4.6 percentage points.

Where does this leave the 15 percent tax bracket, which includes the majority of taxpayers?

Sorry, you and you alone get no marginal rate cut at all. Your bracket sticks at 15 percent. (That s for people whose taxable income after all deductions, exemptions and credits doesn't exceed $27,050 for singles or $45,200 for couples.)

I can t help but remember all the yapping in Congress about the need to cut marginal tax rates to encourage investment and work. Apparently, the better-heeled need encouragement the most.

Money back. Every taxpayer, rich and poor, will owe a little less tax on the first few thousand dollars that he or she earns. The savings, for the upper two-thirds of taxpayers: $300 a year for singles, $500 for heads of households, such as single parents, and $600 for couples. This year, you 11 get checks in the mail, paid as an early refund on your 2001 tax. Next year, the tax cut comes through tax withholding.

Lower-income taxpayers are another matter. Smaller refund checks often much smaller will be mailed to singles whose taxable annual incomes fall below $6,000 and couples below $12,000.

No refund at all will be paid to the working poor, if their deductions, exemptions and credits exceed the income tax they owe. In White House terms, they aren t real taxpayers. Citizens for Tax Justice, a tax study group, puts these two groups at 51 million people more than one-third of all tax filers.

There s also no refund for taxpayers who are dependents on someone else s tax return.

If you earn enough to make it to the Treasury s mailing list, your refund check should arrive by the end of September. It will go to the address shown on the tax return you filed this year, so if you move be sure to tell the postal service where you ve gone.

Marriage penalty. Taxes rise after marriage only for two-paycheck couples where each spouse earns about the same. Otherwise, getting married always gives you a lower tax.

Congress, however, cut future taxes for all married couples, whether they pay the penalty or not.

Starting in 2005, couples will get a higher standard deduction good for those who don t itemize. There will also be a more favorable tax calculation for couples in the higher brackets (not for those taxed at 15 percent).

Let us murmur a short prayer for the unmarried, who make up 58 percent of the taxpaying population. They re already taxed at higher rates than couples on the same total income. Further tax cuts for marrieds will make the singles penalty higher still.

College tuition deduction. This new tax break supposedly lasts for just four years, through 2005 (odd, eh?). Middle-income people can write off $3,000 in tuition costs in 2002, rising to $4,000 in 2004. Upper-middles get a smaller write-off in 04 and 05.

Tax credits involving children. The child credit rises to $600 per child this year, up from $500 before, then increases gradually to $1,000 in 2010. There s a small refundable credit for the working poor.

Working people will get a higher credit for the cost of caring for children and other dependents. And you can write off more adoption costs.

Tax Changes Benefit Education Savings

For people saving for their children's education, the new tax law just rearranged the landscape. Tax favors rained down from heaven on college savers and also on people saving for private elementary and high school.

Here's what the education-savings scene will look like. All the tax changes start next year.

529 college-savings plans. At present, these plans are all run by the states. You make monthly or lump-sum contributions and choose among various investment programs. Typically, plans for younger children lean toward stocks; plans for teenagers lean toward bonds.

Your contributions to 529s grow tax-deferred. Under the new law, all of your gains interest, dividends and capital gains will be entirely free of federal tax, as long as you spend the money on higher education.

Friends and relatives can contribute, too. You can use your 529 account at any accredited U.S. school.

Each state sets a limit on what can be invested.

Education IRAs. Most people will be able to contribute up to $2,000 a year for each child under 18. As with 529s, you don't get an upfront tax deduction. But you can withdraw the gains tax free for education expenses.

The full EIRA contribution goes to singles with gross annual incomes up to $95,000 and couples with annual incomes up to $190,000. Above those limits, the contribution shrinks, phasing out at $110,000 for singles and $220,000 for couples. (But higher-income parents could give $2,000 to their kids, grandchildren or an eligible friend and let them make the contribution.)

When saving for higher education, which plan should you use? EIRAs give you more investment choices. But 529s still have the edge.

You can contribute larger amounts to 529s. There are no age or income limits. And you have a lot of flexibility for example, being able to take the money back. With 529s, only the gains count toward student income, which puts you in a better position.