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Leslie Bonacum
Neil Allen

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 another’s 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 in benefits.

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 $3,000.

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 expenses.

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 to $150,000.


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 other plans.

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 employer’s defined benefit plan or an IRA can be rolled over.

Small Business

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.


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 The Federal and State Tax group web site can be accessed at

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