Some Tax Benefits to Increase in 2012
As part of its annual review process, the Internal Revenue Service announced that some benefits will increase during the 2012 tax year due to inflation. These changes will affect personal exemptions and standard deductions for 2012 tax returns.
A spokesperson for the IRS said while benefits are reviewed annually for inflation adjustments, this is the first time in a few years the agency has implemented an increase.
Each personal and dependent exemption is now $3,800, a $100 increase over 2011. Standard deductions are up $300 to $11,900 for married couples filing jointly, up $150 to $5,950 for individuals and married couples filing separately, and up $200 to $8,700 for heads of household. Tax-bracket thresholds are also set to increase for each filing status.
Tax Credits and Deductions
Medicare Medical Savings Accounts (MSAs) will be impacted by the changes. An MSA, which is a type of Medicare Advantage plan, combines a high-deductible health plan with a medical savings account. Participants can use the savings account to pay for health care, and will have insurance coverage once they satisfy their deductible.
Self-only coverage for minimum annual deductibles will be $2,100 and $4,200 for family coverage. Maximum annual deductibles will be $3,150 for self-only coverage and $6,300 for family coverage. And maximum annual out-of-pocket expenses will be $4,200 for self-only coverage and $7,650 for family coverage.
For those who live and work outside the U.S., the foreign earned income deduction for tax year 2012 is set to rise to $2,200 to $95,100 in foreign wages.
The earned income tax credit (EITC), which provides a refundable federal income tax credit for low- to moderate-income working individuals and families, rises to $5,891 for the 2012 tax year. The maximum income limit increases to $50,270. When the EITC exceeds the amount of taxes owed, those who claim and qualify for the tax credit, which varies by family size and filing status, will receive a refund. Those interested in learning more about the EITC can consult the IRS EITC Assistant by clicking here.
Adjustments to Tax Phase Outs
The modified adjusted gross income threshold, when the lifetime learning credit begins to phase out, increases $2,000 to $104,000 for joint filers and up $1,000 to $52,000 for single filers and heads of household. The $2,500 maximum deduction for interest paid on student loans will begin to phase out at $125,000 for married taxpayers filing jointly. It is set to phase out completely at $155,000. The phase out levels for single taxpayers will remain at 2011 levels.
Estate and Gift Tax Modifications
Exclusions for estate taxes are also set to change. For an estate of someone who dies during the 2012 calendar year, the basic exclusion from estate tax is $5,120,000, an increase of $120,000 from 2011. However, the annual exclusion for gifts will remain at the $13,000 level.
2012 Federal Income Tax Brackets