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 old tax laws change every year, based on the inflation rate. While the adjustments may seem small, every dollar counts when it comes to taxes.
Bankrate's 2010 Tax Guide
1. Standard deduction amounts
Most taxpayers claim the standard deduction instead of itemizing. On 2009 returns, the standard amount for single filers is $5,700. That amount, which is $250 more than the 2008 tax year, is also what a married taxpayer who opts to file separately from a spouse can claim. Head of household taxpayers get an $8,350 standard deduction this year, up $350 from 2008’s amount.
Married couples who file a joint return get a $500 bump, giving them a $11,400 standard deduction. This is double the single-filer amount, thanks to legislation from several years ago that lessened 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 $3,650 apiece this filing season. That’s $150 more than the previous tax year.
- Standard deduction amounts.
- Personal exemptions.
- Social Secutiry wage base.
- Earned income tax credit, or EITC.
- Car costs.
However, if you make a lot of money, your exemption amount could be reduced or even eliminated. For 2009 returns, this income trigger starts at $83,400 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 $106,800 you earned last year was subject to this 6.2 percent levy. Your employer matched that percentage 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 2009 Social Security wage base was $4,800 more than the $102,000 wage base of the year before. For 2010 planning purposes, it stays at $106,800.
4. Earned income tax credit, or EITC
Workers on the other end of the income scale also get an added inflationary break. The earned income tax credit helps cut the tax bill of filers who make below a certain wage limit.
The potential credit on 2009 returns ranges from $457 to $5,657.
A childless person who earned less than $13,440 in 2009 can apply for the credit. A worker who, supporting one child, made less than $35,463 is eligible, as is a worker earning less than $40,295 and taking care of two youngsters.
New for tax year 2009, the EITC amount increased for workers with a third qualifying child. Those taxpayers can claim the credit if they earned less than $43,279.
The EITC earning limits are $5,000 higher in each category for married taxpayers filing jointly.
Because the EITC is a credit, you subtract the amount directly from any tax you owe. Even better, unlike most tax credits, the EITC is refundable. That means if you qualify, you can get the money even if you owe no tax.
5. Car costs
If you used your car for business in 2009, the standard mileage rate for business use of a car, van, pickup or panel truck is 55 cents per mile.
Travel for medical purposes last year is deductible on your 2009 return at 24 cents per mile. That same rate applies to allowable move-related mileage.
The mileage deduction for travel in connection with charitable services is not adjusted for inflation. It is set by law at 14 cents a mile.
In addition to these inflation adjustments to existing tax laws, there are some new ones on the books that could affect your 2009 return. See “7 new tax laws you should know.”