Tax News

CCH (cch.taxgroup.com) reports:

  As a service to our subscribers, CCH Tax & Accounting has prepared projected inflation-adjusted tax bracket numbers for the 2009 Tax Rate Schedules, the standard deduction and personal exemption for use in year-end and 2009 tax planning. The projected figures are based on the inflation-adjustment provisions of the Internal Revenue Code (IRC) as currently in force 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, 2008. Official IRS figures will not be released until later in 2008.

Tax Brackets

  Joint returns. For married taxpayers filing jointly and surviving spouses, the maximum taxable income subject to the 10-percent bracket will rise from $16,050 in 2008, to $16,700 in 2009; the top of the 15-percent tax bracket will increase from $65,100 to $67,900. The bracket amounts for the remaining tax rates show similarly proportionate increases: $137,050 as the maximum for the 25-percent bracket (up $5,600 from 2008); $208,850 for the 28-percent bracket (up $8,550 from 2008); and $372,950 for the 33-percent bracket (up $15,250 from 2008). Amounts above the $372,950 level will be taxed at the 35-percent rate.

  Unmarried filers. For single taxpayers, the maximum taxable income for the 10-percent bracket will increase to $8,350 for 2009 (up from $8,025 in 2008). The remainder of the rate brackets show inflation increases of: $1,400 for the top of the 15-percent bracket (to $33,950); $3,400 for the 25-percent bracket (to $82,250); $7,000 for the 28-percent bracket (to $171,550); and $15,250 for the top of the 33-percent bracket (to $372,950).

  Married filing separately. Married taxpayers filing separately will see a $325 increase for the upper limit of the 10-percent bracket (to $8,350) and a $1,400 increase for the 15-percent bracket (to $33,950). The top of the 25-percent bracket will increase by $2,800 (to $68,525); the 28-percent bracket will increase by $4,275 (to $104,425); and the 33-percent bracket will increase by $7,625 (to $186,475).

  Heads of household. For heads of households, the maximum taxable income for the 10-percent bracket will rise to $11,950 (from $11,450). The top of the remainder of the bracket amounts will also increase: up $1,850 from 2008 for the 15-percent bracket, to $45,500; up $4,800 from 2008 for the 25-percent bracket, to $117,450; up $7,800 from 2008 for the 28-percent bracket, to $190,200; and up $15,250 from 2008 for the top of the 33-percent bracket, to $372,950.

  Estates and trusts. For estates and nongrantor trusts, the maximum taxable income for the 15-percent bracket will increase by $100 over the 2008 level, to $2,300 (there is no 10-percent bracket for these taxpayers). For the 25-percent bracket, the maximum for the bracket will be $5,350 (up $200 from 2008); for the 28-percent bracket, $8,200 (up $350 from 2008); and, for the 33-percent bracket, $11,150 (up $450 from 2008).

Standard Deduction

  The 2009 standard deduction will rise by $250, to $5,700, for single taxpayers; by $350, to $8,350, for heads of households; by $500, to $11,400, for married taxpayers filing jointly and surviving spouses; and by $250, to $5,700, for married taxpayers filing separately. The standard deduction for dependents will rise to $950 (or earned income plus $300).

Personal Exemptions

  The amount of personal and dependency exemptions for 2009 will increase from the 2008 level by $150 to $3,650.

Gift Tax

  The gift tax annual exemption, which rose from a base of $10,000 to $11,000 in 2002 and to $12,000 in 2006, will rise to the $13,000 level for 2009. Pursuant to the IRC, the exemption can rise only when the inflation adjustment produces an increase of $1,000 or more.

Personal Exemption, Itemized Deduction

  Personal exemption phaseout. The 2009 personal exemption phaseout for married taxpayers filing jointly will increase by $10,250 over the 2008 level and will begin at adjusted gross income (AGI) of $250,200; for single taxpayers, the phaseout will increase by $6,850 over the 2008 level, to begin at AGI of $166,800; for heads of households, the increase over 2008 will be $8,550, to begin at AGI of $208,500; and for married taxpayers filing separately, the phaseout will begin at AGI of $125,100, representing an increase of $5,125 over the 2008 level.

  Itemized deductions phaseout. For higher income taxpayers, the amount of their otherwise allowable itemized deductions will be reduced when AGI exceeds a threshold amount. The reduction is equal to the lesser of three percent of AGI over the threshold amount or 80 percent of itemized deductions otherwise allowable. For 2009, the threshold amount at which the three-percent itemized deduction limitation takes effect will increase by $6,850, to AGI of $159,950 for married taxpayers filing jointly, single taxpayers and heads of household, and will increase by $3,425, to AGI of $83,400 for married taxpayers filing separately.

  CCH Comment. Continuing from the previous year, taxpayers only lose one-third of the amount otherwise required under the personal exemption and itemized deduction phaseouts, down from two-thirds in 2006 and 2007.

New for 2009

  Agricultural bonds. Section 15341 of the Food, Conservation, and Energy Act of 2008 (P.L. 110-234) amended Code Sec. 147(c)(2) to increase the portion of private activity bonds allowed for use by first-time farmers to acquire land. As a result, these amounts are now indexed for the first time for inflation for years after 2008. The amount for 2009 is $469,200.

  Expatriation. Section 301 of the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act) (P.L. 110-245) added
Code Sec. 877A regarding tax penalties for U.S. citizens expatriating to foreign countries. The provision requires them to treat their property as sold on the day before the expatriation date for its fair market value, subject to a specified exclusion from gross income. As passed, this amount was $600,000. However, it is adjusted for inflation for calendar years after 2008. For 2009, the exclusion is $626,000.

  Retirement plan contribution. Deductions for qualified retirement plan contributions are increased and inflation-adjusted for the first time for tax years after 2008. The amount for 2009 remains at $5,000 because of a $500 rounding convention.

Other Tax Figures

  In addition to the projected tax figures for 2009 listed above, the IRC requires other adjustments based on the September 2007 through August 2008 CPI amounts. These additional amounts include:

  Roth IRAs . The AGI limits for maximum Roth IRA contributions are: married filing jointly, $166,000 (formerly $159,000); other filing statuses, other than married filing jointly or separately, $105,000 (formerly $101,000).

  IRAs. The AGI limits for maximum IRA contributions for individuals covered by a retirement plan are: married filing jointly, $89,000; head of household and single, $55,000.

  Education savings bond interest exclusion. When U.S. savings bonds are redeemed to pay expenses for higher education, the interest may be excluded from income if the taxpayer's income is below a certain range. For 2009, that phase-out range begins at $69,950 modified AGI ($104,900 for joint returns).

  Education credits. The HOPE and Lifetime Learning Credits for 2009 will be phased out for those taxpayers with modified adjusted gross income in 2009 starting at $48,000 ($96,000 for married joint filers). The $1,000 credit amount in 2009 goes up $100 to $1,200.

  Adoption expense credit. This $10,000 maximum credit was first subject to an inflation adjustment after 2002. For 2009, the amount will increase to $12,150, with the AGI phaseout beginning at $182,180.

  Student loan interest income phaseout. The $2,500 student loan interest deduction phaseout begins at $60,000 AGI for singles in 2009. The phase-out level for joint filers rises to $120,000.

  Gifts to noncitizen spouses. The first $133,000 of gifts in 2009 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up $5,000 from 2008.

  Foreign gifts. A U.S. person receiving aggregate foreign gifts exceeding $14,139 in 2009 must file an information return.

  Transportation fringe benefits. The monthly cap on the exclusion of qualified parking expenses will be $230 in 2009 (up from $220 in 2008). Transit passes/commuter highway vehicle amounts will rise $5 to $120 per month.

  Child credit. The refundable child credit earned income threshold will be $12,550 (formerly $12,050).

  By George Jones and Torie Cole, CCH News Staff