IRS Releases Official 2012 Tax Rate Brackets, Standard Deductions, Other Inflation-Adjusted Figures

The IRS has issued the income tax brackets, retirement plan thresholds and many other inflation adjustments for the 2012 tax year. Most tax breaks will have minor adjustments for 2012. Several items, however, are increasing for the first time since 2009 while a few others are not increasing at all.

Tax Rate Tables

The highest marginal tax rate for individuals of 35 percent applies in 2012 to taxable income over $388,350 ($194,175 for married taxpayers filing separate returns).  This is an increase of $9,200 ($4,600) over 2011 levels.  See the end of this article for all of the individual and estate/trust income tax rate tables for 2012.

Exemptions

The personal exemption and the dependency exemption are $3,800 for 2012.

Standard deduction

The standard deduction for married couples filing a joint return is $11,900 for 2012. The standard deduction for single individuals and married couples filing separate returns is $5,950 for 2012. The standard deduction for heads of household increases by $200 to $8,700 for 2012.

Estate and Gift tax

The 2010 Tax Relief Act increased the exclusion from estate tax to $5,000,000 for 2010 through 2012. This exclusion also applies for gift tax purposes in 2011 and 2012.  For 2012, the exclusion has increased to $5,120,000.

The annual gift tax exclusion remains unchanged at $13,000 for 2012. Gift splitting allows married couples to give up to $26,000 to a person without making a taxable gift.  The exclusion for gifts to a spouse who is not a citizen of the United States increases to $139,000 for 2012.

Education

The Hope Scholarship credit (American Opportunity Tax Credit) is equal to 100 percent of the amount of qualified tuition and related expenses not in excess of $2,000, plus 25 percent of those expenses that exceed $2,000 but do not exceed $4,000. The maximum credit for 2012 is $2,500. For tax years beginning in 2012, this credit begins to phase out for single individuals whose modified adjusted gross income (MAGI) exceeds $80,000 and at $160,000 for married couples filing joint returns.

For tax years beginning in 2012, the Lifetime Learning Credit begins to phase out for single individuals whose modified adjusted gross income (MAGI) exceeds $52,000 and at $104,000 for married couples filing joint returns.

For 2012, the $2,500 maximum deduction for interest paid on qualified education loans begins to phase out for single individuals with MAGI in excess of $60,000 and for married couples filing joint returns with MAGI in excess of $125,000. The deduction is completely phased out for single individuals with MAGI of $75,000 or more and for married couples filing joint returns with MAGI of $155,000 or more.

Children

For 2012, the amount used to reduce the net earned income reported on a child’s return subject to the kiddie tax is $950. The same $950 amount is used to determine if a parent may elect to include a child’s gross income in the parent’s income and to calculate the kiddie tax.  Also, the standard deduction for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $950 or the sum of $300 and the individual’s earned income.

COLA Limits for Qualified Plans

Cost of living adjusted amounts applicable to qualified retirement plans for 2012 are increasing for the first time since 2009. The cost of living adjustments (COLAs) affect the maximum limits for a variety of contributions and distributions for 2012, including defined benefit accounts, 401(k)s, and other defined contribution plans, as well as limits on employee stock ownership plans (ESOPs) and benefits to highly-compensated employees.

Defined contribution plans

The limits on elective deferrals to 401(k)s, 403(b)s, certain 457s, and the federal government’s Thrift Savings Plan increase $500 to $17,000 for 2012.  The limit on annual additions to defined contribution plans increases for 2012 from $49,000 to $50,000.

Defined benefit plans and ESOPs

The maximum amount a defined benefit plan may pay a participant each year increases to $200,000 for 2012.  The amount for determining the maximum ESOP account subject to a five-year distribution period increases from $985,000 to $1,015,000 in 2012. The dollar amount used to determine the lengthening period of the five-year distribution also increases to $200,000 for 2012.

Individual Retirement Accounts (IRAs)

For taxpayers who are active participants in an employer-sponsored retirement plan, the deduction for making contributions to a traditional IRA is phased out for single taxpayers who have modified adjusted gross income (MAGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011.  For married couples filing a joint return, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $92,000 to $112,000 in 2012, up from $90,000 to $110,000.  For married couples filing a joint return, in which the spouse who makes the IRA contribution is not an active participant in an employer-sponsored retirement plan but the other spouse is a participant, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000 in 2011.

The MAGI phase-out range for taxpayers making contributions to a Roth IRA in 2012 is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000.  For single taxpayers, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000 in 2011.

Catch-up contributions

Eligible individuals age 50 and above may make catch-up contributions to IRAs, 401(k)s and other savings arrangements. While many COLA limits are increasing for 2012, these limits are not.  The catch-up amount for IRAs remains unchanged for 2012 at $1,000.  The catch-up amount for 401(k)s, 457s, 403(b)s, and SEPs also remains unchanged at $5,500 for 2012.

SIMPLE plans

Both the elective deferral limit, and the catch-up amount, for SIMPLE plans remains unchanged from 2011. The elective deferral limit for a SIMPLE plan continues to be $11,500 for 2012. The $2,500 catch-up amount for SIMPLE plans is not indexed for inflation.

Some other notable inflation-adjusted 2012 amounts relevant to qualified plans include:

  • The annual compensation limit relating to the maximum compensation counted for an eligible employee in a qualifying plan increases from $245,000 to $250,000 for 2012.
  • The limitation used in the definition of a highly-compensated employee increases to $115,000 in 2012, up from $110,000 in 2011.
  • The dollar limitation concerning the definition of key employee in a top heavy plan increases $5,000 to $165,000 for 2012.
  • The compensation amounts relevant to the definition of control employee for fringe benefit valuation purposes increases from $95,000 to $100,000 for 2012.

Social Security Wage Base Increases for 2012

The maximum amount of earnings subject to Social Security will increase for the first time since 2009, up to $110,100 in 2012 from $106,800 in 2011. The Social Security Administration also reported that Social Security and Supplemental Security Income benefits will increase 3.6 percent in 2012.

We have only summarized the most common inflation adjustments here. For more information, please click on the links below.

SSA News Release – Social Security Announces 3.6 Percent Benefit Increase for 2012

IRS News Release – IR-2011-103 – IRS Announces Pension Plan Limitations for 2012

IRS News Release – IR-2011-104 – In 2012, Many Tax Benefits Increase Due to Inflation Adjustments

 2012 Tax Rate Tables

Married Individuals Filing Joint Returns and Surviving Spouses

If Taxable Income Is: The Tax Is:
Not over $17,400 10% of the taxable income
Over $17,400 but not over $70,700 $1,740 plus 15% of the excess over $17,400
Over $70,700 but not over $142,700 $9,735 plus 25% of the excess over $70,700
Over $142,700 but not over $217,450 $27,735 plus 28% of the excess over $142,700
Over $217,450 but not over $388,350 $48,665 plus 33% of the excess over $217,450
Over $388,350 $105,062 plus 35% of the excess over $388,350

Unmarried Individuals (other than Surviving Spouses and Heads of Households)

If Taxable Income Is: The Tax Is:
Not over $8,700 10% of the taxable income
Over $8,700 but not over $35,350 $870 plus 15% of the excess over $8,700
Over $35,350 but not over $85,650 $4,867.50 plus 25% of the excess over $35,350
Over $85,650 but not over $178,650 $17,442.50 plus 28% of the excess over $85,650
Over $178,650 but not over $388,350 $43,482.50 plus 33% of the excess over $178,650
Over $388,350 $112,683.50 plus 35% of the excess over $388,350

Married Individuals Filing Separate Returns

If Taxable Income Is: The Tax Is:
Not over $8,700 10% of the taxable income
Over $8,700 but not over $35,350 $870 plus 15% of the excess over $8,700
Over $35,350 but not over $71,350 $4,867.50 plus 25% of the excess over $35,350
Over $71,350 but not over $108,725 $13,867.50 plus 28% of the excess over $71,350
Over $108,725 but not over $194,175 $24,332.50 plus 33% of the excess over $108,725
Over $194,175 $52,531 plus 35% of the excess over $194,175

Heads of Households

If Taxable Income Is: The Tax Is:
Not over $12,400 10% of the taxable income
Over $12,400 but not over $47,350 $1,240 plus 15% of the excess over $12,400
Over $47,350 but not over $122,300 $6,482.50 plus 25% of the excess over $47,350
Over $122,300 but not over $198,050 $25,220 plus 28% of the excess over $122,300
Over $198,050 but not over $388,350 $46,430 plus 33% of the excess over $198,050
Over $388,350 $109,229 plus 35% of the excess over $388,350

Estates and Trusts

If Taxable Income Is: The Tax Is:
Not over $2,400 15% of the taxable income
Over $2,400 but not over $5,600 $360 plus 25% of the excess over $2,400
Over $5,600 but not over $8,500 $1,160 plus 28% of the excess over $5,600
Over $8,500 but not over $11,650 $1,972 plus 33% of the excess over $8,500
Over $11,650 $3,011.50 plus 35% of the excess over $11,650


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