5 old tax laws, new amounts
Some new tax laws make it into the Internal Revenue Code every year. But there also are some perennial tax provisions that remain the same and are adjusted annually to reflect inflation.
|These five tax
code standards change every year,
based on the inflation rate. While
the adjustments may seem small, every
dollar counts when it comes to taxes.
1. Standard deduction amounts
Most taxpayers claim the standard deduction instead of itemizing. On 2008 returns, the standard amount for single filers is $5,450. That amount, which is $100 more than the 2007 tax year, is also what a married taxpayer who opts to file separately from a spouse can claim. Head of household taxpayers get an $8,000 standard deduction this year, up $150 from 2007's amount.
Married couples who file a joint return get a $200 bump, giving them a $10,900 standard deduction. This is double the single-filer amount, thanks to legislation from several years ago that lessen the marriage tax penalty. The change was made to appease husbands and wives who had argued that filing one joint return cheated them of tax breaks they would have received if they had submitted two separate 1040s. Qualifying widows and widowers also can use this amount.
2. Personal exemptions
You, your spouse and each person you can claim as a dependent are valuable exemptions that can cut your tax bill. You're all worth $3,500 apiece this filing season. That's $100 more than the previous tax year.
However, if you make a lot of money, your exemption amount could be reduced or even eliminated. For 2008 returns, this income trigger starts at $119,575 for married taxpayers who file separately. Regardless of your filing status, if you hit that mark, you will have to complete a work sheet to determine your exemption amount.
3. Social Security wage base
Every worker knows that a portion of each paycheck goes to pay for Social Security benefits. But if you earn a lot, some of your wages escape this payroll withholding. The first $102,000 you earned last year was subject to this 6.2 percent levy. Your employer matched that amount.
If you earned more, the Social Security tax wasn't collected on the overage amount. You did, however, continue to pay the 1.45 percent Medicare portion, again matched by your company on every dollar you made last year.
The 2008 Social Security wage base was $4,500 more, or an increase of 4.6 percent over the $97,500 wage base of the year before. For 2009 planning purposes, it goes up to $106,800.