Omnibus Budget Reconciliation Act Of 1993

Definition of "Omnibus budget reconciliation act of 1993"

Written by

Melody Batule

Keller Williams Realty

Act designed to help reduce the federal deficit by approximately $496 billion over five years through a restructuring of the tax code. The following include some of the major provisions that will have an impact, on financial planning:

1. Establishment of a new top tax rate on ordinary income (wages, interest, dividends, etc.) of 36% on taxable income alone: Applicable Filing Status Threshold Married individuals filing joint returns $ 140,000 Heads of households 127,500 Unmarried individuals 115,000 married individuals filing separate returns 70,000 Estates and trusts 5,500
2. Establishment of a new 10% surtax on individuals with taxable income in excess of $250,000; except for married individuals filing separately the surtax applies to taxable income over $125,000.
3. Establishment of a new 39.6% marginal tax rate, which includes the above 10% surtax, to be applied to taxable income in excess of the $250,000. Long-term capital gains are not subject to the higher rates, and will not be taxed at a rate higher than 28%. Since the passage of this Act, the maximum long-term capital gains tax has been reduced to 20%.
4. Establishment of a new two-tiered progressive Alternative Minimum Tax rate schedule for non-corporate taxpayers as follows: married individuals filing a joint return would pay a 26% rate on Alternative Minimum Taxable Income up to $175,000, and a 28% rate on Alternative Minimum Taxable Income in excess of $175,000; married individuals filing separate returns would pay a 28% rate on Alternative Minimum Taxable Income in excess of $87,500.
5. Exemptions under the Alternative Minimum Tax increased as follows: to $45,000 from $40,000 for married individuals filing joint returns; to $22,500 from $20,000 for married individuals filing separate returns, as well as estates and trusts; to $33,750 from $30,000 for single individuals.
6. Elimination of the dollar limitation cap on self-employment income and wages subject to medicare hospital insurance.
7. Establishment of new maximum estate and gift tax rates as follows: for transfers between $2.5 million and $3 million, a 53% rate is applied; for transfers in excess of $3 million, a 55% rate is applied.
8. Deductible of allowable meals and entertainment to the extent of 50% of costs.
9. No deduction for club dues permitted; however, particular business expenses such as meals and entertainment incurred at a club are deductible to the extent of 50% of costs.
10. For the publicly held corporation, no deduction permitted for compensation paid over $1 million for any one of its highest five executives.
11. For qualified retirement plan contributions, a reduced compensation ceiling from $235,840 in 1993 to $150,000 beginning in 1994. The $150,000 ceiling is to be indexed according to the inflation index each year beginning in 1996.
12. For Social Security recipients, up to 85% of Social Security benefits taxable for married retirees with income in excess of $44,000 and for single retirees income in excess of $34,000.
13. For self-employed individuals, a deduction as a business expense up to 25% of the premiums paid for health insurance coverage for that individual, spouse, and dependents.
14. Repeal of the luxury excise tax of 10% on boats, aircraft, jewelry, and furs. The luxury excise tax of 10% indexed for inflation remains for automobiles in excess of $30,000.
15. Maximum corporate tax rate increased to 35% on taxable income above $10 million. For the personal service corporation, the flat rate is increased to 35%.