By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2008. Increases in personal exemptions and the standard deduction, widening of the tax brackets, and a higher Hope Credit are among the many changes for taxpayers in 2008.
Key changes affecting 2008 returns, filed by most taxpayers in early 2009, include the following:
- The value of each personal and dependency exemption, available to most taxpayers, is $3,500, up $100 from 2007.
- The new standard deduction is $10,900 for married couples filing a joint return (up $200), $5,450 for singles and married individuals filing separately (up $100) and $8,000 for heads of household (up $150). According to the IRS, nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions.
- Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007. See the link to the related article below for the new tax rate schedules for 2008.
- The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $4,824, up from $4,716. The income limit for the credit for joint return filers with two or more children is $41,646, up from $39,783.
- The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
- The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up $500). Low- and moderate-income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.
- The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.
- For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).
- Participants in most employer-sponsored 401(k) plans and 403(b) plans (for employees of public schools and certain tax-exempt organizations) can contribute up to $15,500, unchanged from 2007. Individuals, age 50 or over, can make an additional contribution of up to $5,000, also unchanged from 2007.
- Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007. Those, age 50 or over, can make an additional contribution of up to $2,500, also unchanged from 2007.
- The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.