Summary of 2002 Tax Law Changes For Individuals
There are plenty of changes in the tax laws this year. Every taxpayer is affected in some way by the new rules that affect individuals. Here is a summary of the major changes to the income tax laws that affect individual taxpayers on their 2002 tax returns.
- Lower tax rates include a decrease of .5% in each of the top four tax brackets, lowering those brackets to 27%, 30%, 35%, and 38.6%.
- Standard deductions have increased to $4,700 single, $6.900 head of household, $7,850 married filing jointly, and $3,925 married filing separately.
- Personal exemptions have increased from $2,900 to $3,000.
- The 60-month rule has been revoked for deductible student loan interest including loans that had exceeded 60 months in previous tax years. The income ceiling for deductions of student loan interest has increased to $65,000 single and $130,000 joint.
- IRA annual contribution limits have increased to $3,000 and there is a $500 catch-up provision for taxpayers over age 50.
- The annual contribution limit to Coverdell Education Savings Accounts has been increased from $500 to $2,000.
- A new above-the-line deduction for college tuition and related fees of $3,000 offers an alternative to the Hope Scholarship Credit and the Lifetime Learning Credit.
- The FICA and self-employment tax base has increased from $80,400 to $84,900.
- 401(k), 403(b), and SEP annual contribution limits have increased to $11,000 and there is a $1,000 catch-up provision available for taxpayers over age 50.
- Bonus first year depreciation has increased to allow for an additional deduction of 30% of the basis of qualifying property. Automobiles are included in this feature as long as they are used more than 50% for business. The depreciation ceiling for automobiles is increased from $3,060 to $7,660 if the 30% bonus depreciation is used.
- A new five-year carryback period is available for net operating losses.
- A retirement savings credit is available for certain taxpayers who contribute to IRAs and other tax-deferred retirement plans. Single taxpayers with income over $25,000 and joint filers with income over $50,000 do not qualify for the credit, nor do dependents, youths under age 18, and full-time students.
- The cap on itemized deductions that determines when deductions are limited has been increased from $132,950 to $137,300.
- The deductible contribution rate for profit sharing plans such as Keogh and SEP plans has been increased from 15% to 25% and the compensation limit has been increased from $170,000 to $200,000. The dollar limit on contributions has been increased from $35,000 to $40,000.
- Certain nonrefundable personal tax credits, including the Child Tax Credit, the Dependent Care Credit, the Hope Scholarship Credit, and the Lifetime Learning Credit can now reduce Alternative Minimum Tax (AMT).
- Educators may deduct up to $250 of out-of-pocket costs of books, supplies, computer equipment, software, and other classroom materials.
For more information on 2002 changes to the tax laws, see Summary of 2002 Tax Law Changes for Businesses.