Important Tax Changes For 2003
There have been lots of changes in the tax rules. Many of them are mandated by indexing – that is, annual upward adjustments to provide relief from inflation, as measured by increases in the Consumer Price Index. What follows are the highlights of several changes that might affect you.
You get a bigger break just for being you. Exemptions are worth $3,050 apiece for 2003, up slightly from $3,000 for 2002.
REDUCTIONS OF EXEMPTIONS
For upper-incomers with AGIs (short for adjusted gross income, the figure on the last line of page one of Form 1040) above certain levels, the deductions for all exemptions -- including those for a spouse and dependents -- gradually decline. For 2003, the exemption phase-out begins when AGI exceeds $139,500 for singles, up from 2002's $137,300; $209,250 for joint filers, up from $206,000; $174,400 for heads of household, up from $171,650; and $104,625 for marrieds filing separately, up from $103,000.
PARTIAL DISALLOWANCE OF ITEMIZED DEDUCTIONS
Most itemized deductibles must be reduced by 3 percent of the amount by which your AGI surpasses a specified amount -- $139,500 for 2003, up from $137,300 for 2002. Put another way, you forfeit $30 in total 2003 deductions for every $1,000 of AGI above $139,500 if you are single or filing jointly. The $139,500 figure drops to $69,750 if you are married and file a separate return; going that route does not raise the threshold for a couple to a combined $279,000.
The standard deduction is the no-proof-required amount that is automatically available without having to itemize for outlays like charitable donations and real estate taxes. Just how much of a standard deduction you get depends on your filing status.
The normal standard deductions increase slightly to $7,950 for joint filers, up $100 from 2002's figure; $3,975 for marrieds filing separately, up $50; $7,000 for heads of household, up $100; and $4,750 for singles, up $50.
EXTRA-LARGE STANDARD DEDUCTIONS FOR THE ELDERLY AND BLIND
For those individuals who are at least 65 by the close of the 2003 tax year, the standard deduction increases by $950 for a married person (whether filing jointly or separately) and $1,150 for an unmarried person. Persons who are considered blind are entitled to those additional amounts or double those amounts if they are both 65 and blind.
CAUTION. Special rules lessen the deduction amounts allowed individuals (children, mostly, or elderly parents) who can be claimed as dependents on the returns of other people. The standard deduction can be as little as $750.
SOCIAL SECURITY TAXES
They now take a bigger chunk of employees' wages. The Social Security tax of 6.20 percent goes from the first $84,900 of earnings for 2002 to $87,000 for 2003, a boost of $2,100. The Medicare tax of 1.45 percent applies to all salaries, bonuses, commissions, vacation pay, etc., for 2003.
Several years ago, a law revision eliminated the cap on Medicare's wage base. Contrast 2003's tab with the maximum levy of $30 (1 percent of the first $3,000 in earnings) for 1937, when Social Security taxes first went on the books. Today, they exact more than federal income taxes from most middle-income earners.
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