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.

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