Ring In The New Year With Lower Rates, Other Changes
In Taxes: CCH Outlines Tax Law Changes To Take Effect January 1
(RIVERWOODS, ILL., December 21, 2001) The new year
brings some tax law changes that should add a little more cheer to
the celebration. Lower personal income tax rates are the cheeriest
news, along with higher contribution limits on retirement plans and
more breaks for those educating their children all the result of
tax legislation in 2001. CCH INCORPORATED (CCH), a leading provider
of tax and business law information and software, offers this look
at changes that affect taxpayers, beginning January 1, 2002.
Personal Income, Deductions
New 10-percent Rate A new 10-percent
tax rate kicks in fully for 2002 and applies to the first $12,000
of income for married taxpayers filing jointly; $6,000 for singles
and those who are married, but filing separately; and $10,000 for
heads of households. (This rate was retroactive to 2001, paid out
in the form of a rebate in the last half of the year.)
Lower Rates for Upper Brackets
Those with income taxed at the 27.5 percent, 30.5 percent, 35.5
percent and 39.1 percent rates in 2001, will see their rates fall
another one-half of one percent on January 1.
Standard Deductions In 2002, the
standard deduction amounts rise to: $7,850 (filing jointly and surviving
spouse), $3,925 (marrieds filing separately) $4,700 (single) and
$6,900 (head of household). The standard deduction for dependents
claimed on anothers return stays the same for 2002 at $750.
Exemptions Each personal exemption
will be worth $3,000 on 2002 returns, up from $2,900 on 2001 returns.
Social Security Adjustments for Inflation
The maximum amount of wages subject to Social Security
old age, survivors and disability withholding increases from $80,400
to $84,900 for 2002.
Social Security Income Limits In
2002, people under age 65 can earn up to $11,280 before seeing a
reduction in their Social Security benefits. If 2002 is the year
in which a person reaches age 65, he or she may earn up to $2,500
per month until reaching age 65 without a reduction in benefits.
Once taxpayers turn 65, they can earn any amount without a reduction
Foreign Earned Income Exclusion The
exclusion on foreign earned income rises to $80,000 for 2002.
Estate Tax The unified credit equivalent
for 2002 will rise to $1 million, a benefit of the 2001 tax legislation
which began the process of phasing out the estate tax over the next
decade. This created a $300,000 "bonus" over the previous
law which would have restricted the unified credit to $700,000 for
the new year.
Gift Tax The gift tax annual exclusion
will rise from $10,000 in 2001 to $11,000 in 2002.
Education and Children
Student Loan Interest Income phase-out
ranges related to deductibility of education loan interest will
increase to $50,000 - $65,000 for singles and to $100,000 - $130,000
for joint filers.
College Tuition Deduction Taxpayers
with children in school get an above-the-line deduction for qualified
higher education expenses in 2002. For those with AGI of below $65,000
(singles) or $130,000 (married filing jointly), the deduction is
Coverdell Education Savings Accounts
Formerly known as Education IRAs, the Coverdell Education Savings
Account contribution limits increase four-fold in 2002, to $2,000
annually for children up to age 18. Funds can also be used tax-free
for elementary and secondary education expenses. Taxpayers now have
up until April 15 to make their contribution.
Mileage Moves Up The
standard per-mile rate for business use of an automobile is 36.5
cents per mile for 2002, up from 34.5 cents per mile in 2001. The
rate for medical use rises from 12 cents per mile to 13 cents per
mile, as does the rate used in computing moving expense. Charitable
use mileage remains at 14 cents per mile.
529 Plans Distribution from qualified
tuition plans are no longer taxable in 2002 if used for qualified
Adoption Credit Legislation passed
in 2001 increased the adoption credit to $10,000 per child, and
doubles the income at the starting point of the phase-out range
IRA Contributions The annual
contribution to an IRA moves up to $3,000 for 2002, a $1,000 increase
over the current tax year. A "catch-up" provision allows
taxpayers age 50 and older to contribute an additional $500 in 2002.
IRA Phaseouts In 2002, the ability
for those covered by a qualified plan to make a deductible contribution
to an IRA will begin to phase out at $34,000 in adjusted gross income
and end at $44,000 for single filers. For marrieds filing jointly,
the phaseout range is $54,000 to $64,000.
Retirement Plan Contributions In
2002, the maximum that can be contributed to a 401(k) plan increases
to $11,000. The limit on elective contributions for SIMPLE plans
increases to $7,000 in 2002, while the limit for contributions to
a government-sponsored 457 plan increases substantially to $11,000
from $8,500 in 2001. Employees age 50 and older may contribute an
additional catch-up amount of $500 for SIMPLE plans and $1,000 for
Flexibility on Rollovers In 2002,
taxpayers will be able to roll over the balance from a qualified
retirement plan to another qualified plan. For example, IRA amounts
can be rolled over to any eligible retirement plan, such as a 401(k)
though employers are not required to participate. Also, after-tax
contributions to employers defined benefit plan or an IRA can be
Expense Election The amount that
can be "expensed" rather than depreciated under Section
179 of the Internal Revenue Code remains at $24,000 in 2002.
About CCH INCORPORATED
CCH INCORPORATED, headquartered in Riverwoods,
Ill., was founded in 1913 and has served more than four generations
of business professionals and their clients. The company produces
more than 700 electronic and print products for the tax, legal, securities,
human resources, health care and small business markets. CCH is a
wholly owned subsidiary of Wolters Kluwer North America. The CCH web
site can be accessed at cch.com. The Federal and State Tax group web
site can be accessed at tax.cchgroup.com.
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