Less To The IRS Next Year: CCH Releases Tax Bracket Changes For 2002

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Gift Tax Exemption Will Increase

(RIVERWOODS, ILL., September 19, 2001) – Tax relief is in store for most taxpayers in 2002, both from changes in the tax law and from annual inflation adjustments to the 2002 tax brackets, according to CCH INCORPORATED (CCH), which today released estimated income ranges for each 2002 tax bracket.

The projections, developed by CCH, a leading provider of tax law information, indicate single and married taxpayers will pay a bit less to the Internal Revenue Service (IRS) to make up for the impact of inflation and will also benefit from the new 10 percent tax bracket. Taxpayers, in what used to be the 28-percent and higher brackets, also will benefit from a lowering of their tax rates.
Two examples show how these various changes work together to produce tax savings:

  • A married couple filing jointly with total taxable income of $100,000 could pay $1,328 less in income taxes in 2002 than they would in 2001 before the Economic Recovery and Tax Relief Reconciliation Act was passed. Of the total, $600 is due to the new 10-percent bracket, while $180 is due to inflation-adjustment of the 15 percent bracket. Another $548 is due to a lowering of the couple's top marginal rate to 27 percent in 2002 (from the old 28 percent rate).
  • A single filer with taxable income of $100,000 will contribute $952 less next year. Of the total reduction, $300 is due to the 10-percent bracket and $172.50 is due to inflation-adjustment of the 15 percent bracket. Another $479.50 is due to a lowering of marginal rates from 28 and 31 percent to 27 and 30 percent, respectively, for 2002.

Inflation Adjustments

For more than a decade, the U.S. tax code has required that federal income tax brackets and certain other figures be adjusted for inflation annually. The adjustment is based on Consumer Price Index figures for September through August immediately prior to the adjusted year. CCH's projections are based on the relevant inflation data released September 18, 2001 by the U.S. Department of Labor.

As the upper end of a bracket is raised, more of each individual's taxable income is taxed at lower rates.
Annual inflation adjustments have been inserted into the Internal Revenue Code in recent years with increasing frequency. Aside from the 40 separate computations needed to inflation-adjust the tax bracket tables each year, the Code now requires over 50 other inflation-driven computations to determine deduction, exemption and exclusion amounts.

Some Items Not Indexed

George Jones, JD, LL.M, senior federal tax analyst for CCH, observed that some items in the Code are not indexed for inflation, notably the new 10-percent bracket.

“This new lowest bracket will apply to the first $6,000 of income for singles, $10,000 for heads of households and $12,000 for joint filers, regardless of inflation, from now until 2007. Then it will be raised by $1,000 for singles and $2,000 for joint filers, but it won't be indexed until 2009,” Jones said.

Similarly, IRA regular annual contribution limit won't be indexed until 2009, although the new law will allow an increase in annual contributions, from the current $2,000 to $3,000 beginning in 2002 and rising gradually to $5,000 in 2008.

“If indexing had been in place since IRAs were introduced in 1982, the contribution limit would already be $3,750 for 2001,” Jones said.

The IRS usually releases official numbers in December each year. CCH tax bracket projections are provided for illustrative purposes only, and should not be used for income tax returns or other federal income tax related purposes until confirmed by the IRS later this year.

Adjustments Add Up Over Time

According to, Jones the size of the "tax cut" generated over the past several years by these inflation-factor increases is substantial.

“In 1997, the 15-percent bracket ended at $ 41,200 for joint filers, while for 2002, the 15 percent bracket extends up to $46,700. That's a $660 ‘tax cut' per taxpayer at the top of the 2002 15-percent bracket, even without the effect of the new 10-percent bracket.”

Standard Deduction, Personal Exemption Also Rise

Adjusted for inflation, the standard deduction and personal exemption amounts are projected to increase as well for 2002. These increases can produce lower taxes by lowering the taxpayer's taxable income.

  • Married couples filing jointly will see a projected $250 increase in their standard deduction, to $7,850
  • Single taxpayers could see a $150 increase over 2001 in their standard deduction, to $4,700.
  • The personal exemption amount will go up in 2002 by $100 to $3,000.

Here, too, the inflation adjustments add up over time. For example, since 1988, the standard deduction for married taxpayers filing joint returns has grown through inflation by more than 50 percent, from $5,000 to the anticipated $7,850 amount for 2002.

For a complete look at how income ranges for each tax bracket are projected to shift next year, see the attached CCH chart.

“Kiddie” Deduction, Gift Tax Exemption

In general, inflation adjustments are rounded to the next lower multiple of $50, so if the adjustment produces an increase of less than $50, no increase is made. For 2001, the “kiddie” standard deduction, used on the returns of children who are claimed as dependents on their parents' returns increased from $700 to $750. This year, it remains the same.

For the first time since it was indexed for inflation back in 1997, the gift tax exemption increases by $1,000 – to $11,000. The Code only allows the exemption to rise when the inflation adjustment would produce an increase of $1,000 or more. For 2002, it cleared that hurdle by a mere $27.22.


CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, legal, securities, insurance, 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 www.cch.com. The CCH federal and state tax web site can be accessed at http://tax.cch.com.


Married Filing Jointly (& Surviving Spouse)

2002 Taxable Income Tax Rate 2001 Taxable Income Tax Rate
$0-$12,000 10%    
$12,000-$46,700 15% $0-$45,200 15.0%2
$46,700-$112,850 27% $45,200-$109,250 27.5%
$112,850-$171,950 30% $109,250-$166,500 30.5%
$171,950-$307,050 35% $166,500-$297,350 35.5%
$307,050 38.6% over $297,350 39.1%

Married Filing Separately

2002 Taxable Income Tax Rate 2001 Taxable Income Tax Rate
$0-$6,000 10%    
$6,000-$23,350 15% $0-$22,600 15.0%2
$23,350-$56,425 27% $22,600-$54,625 27.5%
$56,425-$85,975 30% $54,625-$83,250 30.5%
$85,975-$153,525 35% $83,250-$148,675 35.5%
$153,525 38.6% over $148,675 39.1%

Single Filers

2002 Taxable Income Tax Rate 2001 Taxable Income Tax Rate
$0-$6,000 10%    
$6,000-$27,950 15% $0-$27,050 15.0%2
$27,950-$67,700 27% $27,050-$65,550 27.5%
$67,700-$141,250 30% $65,550-$136,750 30.5%
$141,250-$307,050 35% $136,750-$297,350 35.5%
$307,050 38.6% over $297,350 39.1%

Head of Household

2002 Taxable Income Tax Rate 2001 Taxable Income Tax Rate
$0-$10,000 10%
$10,000-$37,450 15% $0-$36,250 15.0%2
$37,450-$96,700 27% $36,250-$93,650 27.5%
$96,700-$156,600 30% $93,650-$151,650 30.5%
$156,600-$307,050 35% $151,650-$297,350 35.5%
$307,050 38.6% over $297,350 39.1%
Standard Deduction Amounts
Filing Status 2002 2001 Increase
Married Filing Jointly (& Surviving Spouse) $7,850 $7,600 $250
Married Filing Separately $3,925 $3,800 $125
Single $4,700 $4,550 $150
Head of Household $6,900 $6,650 $250
Standard Deduction for Dependents ("Kiddie" Standard Deduction)
2002 2001 Increase
$750 $750 $0
Income Level At Which Three-Percent Itemized Deduction Limitation Takes Effect (Adjusted Gross Income)
Filing Status 2002 2001 Increase
Married Filing Jointly $137,300 $132,950 $4,350
Married Filing Separately $ 68,650 $ 66,475 $2,175
Single $137,300 $132,950 $4,350
Head of Household $137,300 $132,950 $4,350
Personal Exemption Amounts
2002 2001 Increase
$3,000 $2,900 $100


Threshold for Personal Exemption Phaseout
Filing Status 2002 2001 Increase
Married Filing Jointly $206,000 $199,450 $ 6,550
Married Filing Separately $103,000 $ 99,725 $ 3,275
Single $137,300 $132,950 $ 4,350
Head of Household $171,650 $166,200 $ 5,450
Gift Tax Exemption
2002 2001 Increase
$11,000 $10,000 $ 1,000

1.) These numbers are projected for the 2002 tax year and have not been confirmed by the Internal Revenue Service.
2.) For 2001, eligible taxpayers receive the benefit of the 10% rate through a refund check or a rate reduction credit.

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