# Projected Inflation-Adjusted Tax Brackets And Other Amounts For 2003

*provided by CCH*

CCH has prepared projected inflation-adjusted tax brackets for the 2003 Tax Rate Schedules, standard deduction amounts, and personal exemption amounts for use in year-end and 2003 tax planning. The projected figures are based on the inflation-adjustment provisions of the Internal Revenue Code (IRC) 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, 2002. Official IRS figures will not be released until later in the year.

**Tax Brackets for 2003**

For married taxpayers filing jointly, the maximum taxable income for the 10% bracket remains at $12,000; for the 15% tax bracket, $47,450 (up $750 from 2002); for the 27% bracket, $114,650 (up $1,800 from 2002); for the 30% bracket, $174,700 (up $2,750 from 2002); and for the 35% bracket, $311,950 (up $4,900 from 2002).

For single filers, the maximum taxable income for the 10% bracket remains at $6,000; for the 15% bracket, $28,400 (up $450 from 2002); for the 27% bracket, $68,800 (up $1,100 from 2002); for the 30% bracket, $143,500 (up $2,250 from 2002); and for the 35% bracket, $311,950 (up $4,900 from 2002).

For married taxpayers filing separately, the maximum taxable income for the 10% bracket remains at $6,000; for the 15% bracket, $23,725 (up $375 from 2002); for the 27% bracket, $57,325 (up $900 from 2002); for the 30% bracket, $87,350 (up $1,375 from 2002); and for the 35% bracket, $155,975 (up $2,450 from 2002).

For heads of household, the maximum taxable income for the 10% bracket remains at $10,000; for the 15% bracket, $38,050 (up $600 from 2002); for the 27% bracket, $98,250 (up $1,550 from 2002); for the 30% bracket, $159,100 (up $2,500 from 2002); and for the 35% bracket, $311,950 (up $4,900 from 2002).

For estates and nongrantor trusts, the maximum taxable income for the 15% bracket increases by $50 over the 2002 level to $1,900; for the 27% bracket, $4,500 (up $100 from 2002); for the 30% bracket, $6,850 (up $100 from 2002); and for the 35% bracket, $9,350 (up $150 from 2002).

CCH Comment: Beginning in 2004, the second phase of tax bracket reductions called for in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16) will occur. The 10% and 15% rate brackets will remain unchanged, but the 27% bracket will fall to 26%, the 30% bracket will be reduced to 29%, the 35% bracket will become 34%, and the 38.6% bracket will be lowered to 37.6%. Additional tax rate reductions will phase in for 2006 and later.

**Standard Deduction Amounts for 2003**

The 2003 standard deduction will rise by $50 to $4,750 for single taxpayers; by $100 to $7,000 for heads of households; by $100 to $7,950 for married taxpayers filing jointly and for surviving spouses; and by $50 to $3,975 for married taxpayers filing separately. The standard deduction for dependents will remain at $750, and the additional standard deduction amount for the aged and the blind will rise by $50 to $950, while remaining at $1,150 for unmarried individuals who are not surviving spouses.

**Personal Exemptions**

The amount of personal and dependency exemptions for 2003 will increase from the 2002 level of $3,000 to $3,050. Although a phaseout currently applies to exemptions claimed by higher-income taxpayers, EGTRRA provides for the elimination of the phaseout in post-2009 tax years (subject to a sunset provision for years after 2010). The repeal will be phased in over a five-year period beginning in 2006.

The 2003 personal exemption phaseout for married taxpayers filing jointly will increase $3,250 over the 2002 level and will begin at adjusted gross income (AGI) of $209,250; for single taxpayers, the phaseout will increase $2,200 over the 2002 level to begin at AGI of $139,500; for heads of households, the increase over 2002 will be $2,750, to begin at AGI of $174,400; and for married taxpayers filing separately, the phaseout will begin at AGI of $104,625, an increase of $1,625.

CCH Example: Kelley, a single taxpayer, has gross income of $36,000 in both 2002 and 2003. Due to the projected increases in the inflation-adjusted tax brackets, standard deduction, and personal exemption amount, her tax will decrease in 2003 by $57. For 2002, her taxable income is $28,300 ($36,000 minus $4,700 minus $3,000), which places her in the 27% tax bracket, and her tax is $3,987. For 2003, her taxable income is $28,200 ($36,000 minus $4,750 minus $3,050), which places her in the 15% tax bracket, and her tax is only $3,930.

**Itemized Deduction Limitation for 2003**

For higher-income taxpayers, the amount of their otherwise allowable itemized deductions is reduced when AGI exceeds a threshold amount. The reduction is equal to the lesser of 3% of AGI over the threshold amount or 80% of itemized deductions otherwise allowable. The threshold amount at which the 3% itemized deduction limitation takes effect will increase by $2,200 to AGI of $139,500 for married taxpayers filing jointly, single taxpayers, and heads of household, and will increase by $1,100 to AGI of $69,750 for married taxpayers filing separately.

For tax years beginning in 2006, EGTRRA calls for the gradual phaseout of the limitation on itemized deductions for high-income taxpayers until it is fully repealed, effective for tax years beginning after 2009 (subject to a sunset provision for years after 2010).

**Gift Tax Annual Exemption**

The gift tax annual exemption, which increased by $1,000 to $11,000 in 2002 for the first time since it was indexed for inflation in 1997, will remain at $11,000 for 2003. Pursuant to the IRC, the exemption can rise only when the inflation adjustment would produce an increase of $1,000 or more.