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The Internal Revenue Service provides a series of "Fact Sheets"
that highlight many of the important changes in the tax law. The following
highlights are from Fact Sheet FS2003-2 and were shown on the IRS Web
Site. I will be adding additional news pages regularly to keep our
visitors informed.
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2002 Tax Changes: Individuals
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FS-2003-2, January 2003
The following changes are among the most significant
affecting individual taxpayers in the 2003 filing season:
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Eased Burden for Interest and Dividend Income
– The threshold for filing Schedule B of Form 1040
and Schedule 1 of Form 1040A has been raised to
$1,500.Now only taxpayers with taxable interest or
ordinary dividends of more than $1,500 will have to
file these schedules. As a result of this change,
the IRS estimates that 15 million fewer taxpayers
will need to file these schedules. The previous
threshold, in place since 1974, was $400.
| New 10-Percent Tax Rate – The new
10-percent tax rate is reflected in the 2002 Tax Table
and Tax Rate Schedules. This new rate applies to the
first $6,000 of taxable income ($10,000 for a head of
household; $12,000 for married filing jointly or
qualifying widow(er)).
| Tax Rates Reduced – Tax rates above 15
percent are lower by another one-half a percentage
point, reflecting the continuing reduction of rates
under the Economic Growth and Tax Relief
Reconciliation Act of 2001. Thus, these rates are 27%,
30%, 35% and 38.6% for 2002.
| Adoption Credit – The value of this credit,
available for qualified adoption expenses, is doubled
to $10,000 for 2002.In addition, more taxpayers will
be eligible for this credit as the modified adjusted
gross income (AGI) limit was also increased. Now a
taxpayer can have a modified AGI of up to $150,000
without having a reduction in the adoption tax credit.
Qualified adoption expenses include reasonable and
necessary adoption fees, court costs, attorney fees,
travel expenses and other expenses directly related to
the adoption of an eligible child.
| Clean-Fuel Vehicle Deduction – A deduction
of up to $2,000 is now available for certain hybrid
gas-electric motor powered vehicles that have been
certified by the IRS as meeting the provisions of the
clean-fuel vehicle deduction section of the tax code.
Prior to 2002, taxpayers who purchased such
hybrid-motor vehicles were uncertain about the amount
of the deduction and whether they qualified. Those who
purchased such hybrid cars in past years may be
eligible to claim the deduction in a prior year by
filing an amended return.
| Standard Mileage Rates – Taxpayers may
deduct 36.5 cents a mile for all business miles driven
during 2002.Taxpayers may deduct travel related to
qualified medical and moving expenses at a rate of 13
cents a mile.
| Student Loan Interest Deduction – The
interest paid in 2002 on qualified student loans may
now be deducted regardless of the age of the loan.
Prior to 2002, only payments made in the first 60
months qualified. The modified adjusted gross income
limit for this deduction is also increased. See
related Fact Sheet, FS-2003-3, for more details.
| Higher Contribution Limits for Roth and
Traditional IRAs – For 2002, taxpayers may
contribute up to $3,000 ($3,500 if age 50 or older at
the end of 2002) to either traditional or Roth IRAs.
This figure is an increase from a $2,000 limit in the
prior year. Contributions for 2002 can be made until
the due date for filing your return for that year not
including extensions. For most taxpayers, this
means that contributions must be made by April 15,
2003.For more details on this and other changes
affecting retirement plans, see related Fact Sheet,
FS-2003-4. |
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Inflation Adjustments for 2002
The filing requirements, personal exemption,
standard deduction and maximum Earned Income Tax Credit
amounts are adjusted each year for inflation.
| The 2002 gross income filing requirements
are:
Single -- $7,700
Head of household -- $9,900
Married filing jointly -- $13,850
Married filing separately -- $3,000
Qualifying widow(er) -- $10,850 |
Different amounts apply if the taxpayer or spouse is
age 65 or older, or if the taxpayer can be claimed as a
dependent on someone else's return. There are also
other specific situations that require the filing of a
return, such as when the net earnings from
self‑employment are $400 or more.
| The personal exemption amount for 2002 is
$3,000, which is $100 more than last year. Higher
income taxpayers may have to reduce the personal
exemption amount they claim if their adjusted gross
income exceeds:
Single -- $137,300
Head of household -- $171,650
Married filing jointly or Qualifying widow(er) --
$206,000
Married filing separately -- $103,000 |
These taxpayers use a worksheet in the tax package to
figure their deduction for exemptions.
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The standard deduction amounts for 2002 are:
Single -- $4,700
Head of household -- $6,900
Married filing jointly or Qualifying widow(er) --
$7,850
Married filing separately -- $3,925
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Different amounts apply if the taxpayer or spouse is
blind or is age 65 or older, or if the taxpayer can be
claimed as a dependent on someone else's return.
| The Earned Income Tax Credit amounts for 2002
are: |
| Qualifying child |
Income Limit* |
Max. Credit |
Income for Max. Credit |
| One |
$29,201 |
$2,506 |
$7,350-13,550* |
| Two or more |
$33,178 |
$4,140 |
$10,350-13,550* |
| None |
$11,060 |
$376 |
$4,900-6,150* |
* All EITC phaseout points are $1,000 higher for married
taxpayers filing joint returns.
The maximum amount of investment income a person may
have and still be eligible for this credit increased to
$2,550.
Tax Packages
The Internal Revenue Service will send taxpayers more
than 38 million tax packages and nearly 25 million
computer-filing brochures this year. This mailout costs
$8.2 million for printing and nearly $12.2 million for
postage, for an average cost of 32 cents per item mailed. Most
people will get their tax packages in early January. The
IRS expects to receive more than 132 million tax returns
in 2003, with e-filing reaching nearly 54 million returns.
The IRS does not mail tax packages to those likely to
use a computer to do their own returns. Instead, it
sends them a brochure that explains electronic filing and
the Self-Select PIN (personal identification number)
program.
In addition, more than 16 million of the tax packages
invite recipients to file by telephone. These
TeleFile packages -- which contain no tax forms -- include
Customer Service Numbers, used to “sign” the returns,
and a “Tax Record” that helps the taxpayer prepare for
the call and serves as a record of filing.
More than 1.8 million taxpayers will receive a Form
1040-V payment voucher in a separate mailing from their
regular tax packages. The voucher helps ensure that their
payments are accurately credited to their accounts.
Previously, the IRS sent special tax packages that
included the vouchers, but found it could cut costs by
mailing the voucher separately and sending taxpayers the
regular tax packages.
Although the name labels on the tax packages do not
contain Social Security Numbers (SSNs), taxpayers should
use the labels on their forms to help ensure a correct
mailing address. They must put their SSNs on the tax
forms, taking care that each person’s SSN matches the
name on the Social Security card. Failure to do so
may result in delayed refunds or lost tax benefits. Incorrect
or missing numbers for taxpayers or dependents were the
most frequent errors on returns the last few years.
Forms
and publications are available by calling
1-800-TAX-FORM (1-800-829-3676). The IRS TaxFax offers
forms and instructions by return fax -- call 703-368-9694
from a fax machine.
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