As a service to our subscribers, CCH Tax & Accounting has prepared projected inflation-adjusted tax bracket numbers for the 2012 Tax Rate Schedules, the standard deduction and personal exemption for use in year-end and 2012 tax planning. The projected figures are based on the inflation-adjustment provisions of the Internal Revenue Code (IRC) as currently in force and the average of the Consumer Price Index for All Urban Consumers (CPI-U) published by the Department of Labor for each month in the 12-month period ending on August 31, 2011. Official IRS figures will not be released until later in 2011.
The annual inflation rate for the applicable period used for 2012 projections was 3.8 percent, higher than the 1.4 rate used for 2011 figures or the historically low rate of 0.2 percent used for 2010 tax indexing. As a result, most amounts for 2012 are projected to rise. Exceptions that do occur generally are the result of “rounding down” indexing rules found in the IRC.
Tax Brackets
Joint returns. For married taxpayers filing jointly and surviving spouses, the maximum taxable income subject to the 10-percent bracket will rise from $17,000 in 2011, to $17,400 in 2012; the top of the 15-percent tax bracket will increase from $69,000 to $70,700. The bracket amounts for the remaining tax rates will show similarly proportionate increases: $142,700 as the maximum for the 25-percent bracket (up $3,350 from 2011); $217,450 for the 28-percent bracket (up $5,150 from 2011); and $388,350 for the 33-percent bracket (up $9,200 from 2011). Amounts above the $388,350 level will be taxed at the 35-percent rate.
Unmarried filers. For single taxpayers, the maximum taxable income for the 10-percent bracket will increase to $8,700 for 2012 (up from $8,500 in 2011). The remainder of the rate brackets show inflation increases of: $850 for the top of the 15-percent bracket (to $35,350); $2,050 for the 25-percent bracket (to $85,650); $4,250 for the 28-percent bracket (to $178,650); and $9,200 for the top of the 33-percent bracket (to $388,350).
Married filing separately. Married taxpayers filing separately will see a $200 increase for the upper limit of the 10-percent bracket (to $8,700) and an $850 increase for the 15-percent bracket (to $35,350). The top of the 25-percent bracket will increase by $1,675 (to $71,350); the top of the 28-percent bracket will increase by $2,575 (to $108,725); and the top of the 33-percent bracket will increase by $4,600 (to $194,175).
Heads of household. For heads of households, the maximum taxable income for the 10-percent bracket will see a $250 increase from $12,150 in 2011 to $12,400 in 2012. The top of the remainder of the bracket amounts will increase as follows: up $1,100 from 2011 for the 15-percent bracket, to $47,350; up $2,900 from 2011 for the 25-percent bracket, to $122,300; up $4,700 from 2011 for the 28-percent bracket, to $198,050; and up $9,200 from 2011 for the top of the 33-percent bracket, to $388,350.
Estates and trusts. For estates and nongrantor trusts, there will be a slight increase in all the rate bracket amounts from 2011 levels as follows: up $100 from $2,300 in 2011 to $2,400 in 2012 for the 15-percent bracket; up $150 from 2011 for the 25-percent bracket, to $5,600; up $200 from 2011 for the 28-percent bracket, to $8,500; up $300 from 2011 for the 33-percent bracket, to $11,650.
Standard Deduction
The 2012 standard deduction will increase for all taxpayers. The standard deduction amounts for 2012 will be $5,950, for single taxpayers; $8,700, for heads of households; $11,900, for married taxpayers filing jointly and surviving spouses; and $5,950, for married taxpayers filing separately. The standard deduction for dependents holds at $950 (or earned income plus $300).
Personal Exemptions
The amount of personal and dependency exemptions for 2012 will increase to $3,800 from the 2011 level of $3,700.
Gift/Estate Taxes
The gift tax annual exemption, which rose from a base of $10,000 to $11,000 in 2002; $12,000 in 2006, and $13,000 in 2009, will remain at $13,000 for 2012. Pursuant to the IRC, the exemption can rise only when the inflation adjustment produces an increase of $1,000 or more.
In 2012, the applicable unified estate and gift tax exclusions will rise to $5,120,000, a $120,000 increase from 2011. The estate and gift tax is scheduled to revert to pre-2001 levels in 2013 without further congressional action.
CCH Comment. In looking for ways to cut the deficit, a proposal was recently floated among legislators to replace the use of the CPI-U now used to measure inflation for individual income tax purposes with a “chained” CPI, which some economists say better reflects consumer spending patterns. In a June 29, 2011, memorandum on the revenue and distributional effects of the proposal prepared at the request of House Ways and Means Committee ranking member Sander Levin, D-Mich., the Joint Committee on Taxation estimated that taxpayers would pay $59.6 billion more over the next 10-year period if tax amounts were increased for inflation by only the chained CPI measure.
Other Tax Figures
In addition to the projected tax figures for 2012 listed above, the IRC requires dozens of other inflation adjustments for 2012, including:
Code Sec. 179 expensing. For tax years beginning in 2012, the Code Sec. 179 expensing limit will be $139,000 and the cost-of-equipment limit set at $560,000. The current 2011 levels of $500,000/$2 million in place under the 2010 Tax Relief Act will drop to the $125,000/$500,000 levels to which Code Sec. 179 instructs 2006 CPI levels should be compared in adjusting for inflation to arrive at the 2012 amounts.
Roth IRAs. The AGI limits for maximum Roth IRA contributions will be: married filing jointly, $173,000; the AGI limit for other filing statuses, other than married filing jointly or separately, will increase to $110,000 in 2012.
IRAs. The AGI limits for maximum IRA contributions for individuals covered by a retirement plan will increase to $92,000 for married filing jointly and $59,000 for head of household and single filers. The AGI limit for joint filers when only one spouse is covered by a retirement plan will be $173,000 in 2012. The maximum on the base IRA contribution amount, which is subject to indexing, nevertheless will remain at $5,000 for 2012.
Saver’s Credit. For 2012, the saver’s credit will be available based on AGI limit and filing status as follows: joint filers: $34,500 AGI for a 50-percent credit, $37,500 for a 20-percent credit, and $57,500 for a 10-percent credit; head of household: $25,875 AGI for a 50-percent credit, $28,125 for a 20-percent credit, and $43,125 for a 10-percent credit; other filers: $17,250 AGI for a 50-percent credit, $18,750 for a 20-percent credit, and $28,750 for a 10-percent credit.
Education savings bond interest exclusion. When U.S. savings bonds are redeemed to pay expenses for higher education, the interest may be excluded from income if the taxpayer’s income is below a certain range. For 2012, that phase-out range for singles will be $72,850-$87,850 and for joint filers, $109,250-$139,250.
Student loan interest income phaseout. The $2,500 student loan interest deduction phaseout range is $60,000-$75,000 AGI for singles, and $125,000-$155,000 for joint filers in 2012.
Adoption expense credit. For 2012, the amount will increase to $13,690 ($330 more than in 2011), with the AGI phaseout beginning at $189,710 (up $4,500 from 2011).
Medical savings accounts. The minimum-maximum range for MSAs in 2012 will be $2,100-$3,150, with a $4,200 maximum out-of-pocket for single plans and $4,200-$6,300, with $7,650 out-of-pocket for family plans.
Long-term care insurance. The per diem exclusion for long-term care insurance proceeds for 2012 will be $310 per day. The dollar level of long-care premiums deductible as health insurance premiums will range from $350 for those 40 years or younger to $4,370 for those over 70 years of age.
Gifts to noncitizen spouses. The first $139,000 of gifts in 2012 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up $5,000 from 2011.
Foreign gifts. A U.S. person receiving aggregate foreign gifts exceeding $14,723 in 2012 will be required to file an information return.
Foreign earned income. The amount of the foreign earned income exclusion under Code Sec. 911 for 2012 will be $95,100. The foreign earned income housing deduction for 2012 will be set at $28,530.
By George Jones and Jennifer Rodibaugh, CCH News Staff