Tax Changes for 2002
Summary of key changes going into effect for 2002.
Additionally, a number of key tax figures, such as the standard deduction and personal exemption, also will rise due to inflation adjustments.
The following charts illustrate some of the most important tax changes going into effect this year. "Since there are so many changes going into effect this year, taxpayers shouldnt wait until next April to find out how these changes have applied to them. To maximize benefits, we encourage taxpayers to consult a tax professional," says Bob Trinz, an editor of RIA's Federal Taxes Weekly Alert
(RIA provides research, practice materials, and compliance tools for tax, accounting and corporate finance professionals.)
Tax rates & personal deductions
Area of change | New rules for 2002 |
Rate Brackets | A new 10% bracket applies for individuals; the lowest bracket for estates and trusts continues to be 15%. |
Tax rates | The top four tax rates for individuals, estates, and trusts are 27%, 30%, 35%, and 38.6%. |
Personal tax credits
Adoption credit and exclusion for employer-paid adoption assistance | |
Area of change | New rules for 2002 |
Amount of credit/exclusion - regular adoption | Up to $10,000 of qualifying adoption expenses per child (was $5,000). |
Amount of credit/exclusion - special needs child | Up to $10,000 (was $6,000) of qualifying adoption expenses. Credit allowed only for year in which adoption becomes final. |
Phaseout range | $150,000 to $190,000 of modified AGI (up from $75,000 to $115,000 of modified AGI). |
New saver's credit | |
Area of change | New rules for 2002 |
Nonrefundable credit for elective contributions to 401(k) & 457 plans, 403(b) annuities, SIMPLE & SEP plans, traditional or Roth IRAs, & voluntary after-tax contributions to qualified plans | Credit rate (50%, 20%, or 10%), applied against maximum annual contribution of $2,000 per taxpayer, depends on filing status and AGI: Joint filers: $0-$30,000, 50%; $30,000-$32,500, 20%; and $32,500-$50,000, 10% (0% if AGI is above $25,000). Heads of households: $0-$22,500, 50%; $22,500-$24,375, 20%; $24,375-$37,500, 10% (0% if AGI is above $37,500). All others: $0-$15,000, 50%; $15,000-$16,250, 20%; and $16, 250-$25,000, 10% (0% if AGI is above $25,000). Available only to 18 and over nondependents and non-full-time students. Anti-abuse restrictions apply. |
Ira & pension changes
IRA contribution limits | |
Area of change | New rules for 2002 |
Maximum annual contribution | $3,000 (up from $2,000 for 2001). |
Maximum additional annual contribution by taxpayer age 50 or older | $500 (new provision). |
Maximum annual elective deferral to 401(k) plans, 403(b) annuities, salary-reduction SEPs, and sec. 457 plans | |
Area of change | New rules for 2002 |
Maximum regular contribution | $11,000 (up from $10,500 for 2001). Additional 403(b) catch-up contributions may be made under Code Sec. 402(g)(7)( by employees with 15 or more years of service |
Maximum additional contribution by taxpayer age 50 or older | $1,000 (new provision). |
Maximum annual elective deferral to SIMPLE plans | |
Area of change | New rules for 2002 |
Maximum annual contribution | $7,000 (up from $6,500) |
Maximum additional annual contribution by taxpayer age 50 or older | $500 (new provision). |
Tax changes for education
Coverdell education saving account (formerly education IRAs) | |
Area of change | New rules for 2002 |
Annual per-beneficiary contribution limit | $2,000 (up from $500 for 2001) |
Phaseout of contribution for married taxpayers filing jointly | $190,000-$220,000 of modified AGI (up from $150,000-$160,000 of modified AGI). No change in the $95,000 to $110,000 phaseout range for others. |
Qualified education expenses | Higher education tuition, fees, books, supplies, equipment, plus room and board (within liberalized limits) Elementary (including kindergarten) and secondary public, private, or religious school tuition and expenses, including tutoring, room and board, uniforms, and extended-day program costs Special needs services for special needs beneficiaries enrolled in all of above types of schools Purchase of computer technology or equipment (including software), and Internet access and services, for use by beneficiary and his family during any of his school years. Sports, game, or hobby software qualifies only if predominantly educational in nature Contribution to a Code Sec. 529(b) qualified tuition program for benefit of the education-IRA beneficiary (Formerly, qualified education expenses were higher education tuition, fees, books, supplies, equipment, plus room and board (within limits), and the purchase of tuition credits or certificates, or contributions to an account, under a qualified state tuition program for benefit of the education-IRA beneficiary.) |
Above-the-line student-loan interest deduction | |
Area of change | New rules for 2002 |
Phaseout range of deduction for single taxpayers | $50,000-$65,000 of modified AGI (up from $40,000-$55,000 of modified AGI for 2001). |
Phaseout range of deduction for married taxpayers filing jointly | $100,000-$130,000 of modified AGI (up from $60,000-$75,000 of modified AGI for 2001). |
Time limit on interest deductibility | Effective for loan interest paid after 2001, in tax years ending after 2001, interest paid over any period of time on a qualifying loan is deductible. (Formerly, only interest paid during the first 60 months in which interest payments are required qualified.) |
New above-the-line deduction for higher-education expenses | |
Area of change | New rules for 2002 |
Qualified higher education expenses are deductible | Deduction applies to qualified higher education expenses (defined in the same way as for Hope credit purposes) of the taxpayer, spouse, or dependents; reduced by expenses taken into account in determining the amount excluded under Code Sec. 135 (education savings bonds), Code Sec. 529 (c)(1) (but limited to excludible earnings from tuition savings plan), and Code Sec. 530(d)(1) (education IRA contributions and earnings); and reduced by certain excluded scholarships. |
Maximum deduction | $3,000 |
Income limit | May be claimed only if modified AGI doesn't exceed $130,000 for marrieds filing jointly and $65,000 for singles or heads of households. |
Sec. 529 qualified tuition programs | |
Area of change | New rules for 2002 |
Eligible sponsors of programs | A State (or its agency or instrumentality); or an eligible educational institution (including a private one) meeting certification requirements. (Before 2002, only a state or its agency or instrumentality was an eligible sponsor.) |
Available non-state-sponsored qualified tuition programs | Purchase of tuition credits or certificates for waiver or payment of qualified higher education expenses. |
Treatment of earnings used for qualified higher education - state-sponsored tuition program | Distributee excludes earnings. (Before 2002, distributed earnings were taxed to distributee.) |
Treatment of earnings not used for qualified higher education - state-sponsored tuition program | Earnings taxed to distributee and are subject to 10% penalty tax (exceptions, e.g., beneficiary's death or disability, receipt of scholarship, apply.) (Before 2002, earnings were taxed to distributee and program had t impose more than de-minimis penalty on refund of earnings to used for qualified higher education (with exceptions).) |
Treatment of earnings not used for qualified higher education - non-state-sponsored tuition program | Distributee taxed on earnings distributed before 2004. |
Treatment of earnings not used for qualified higher education - non-state-sponsored tuition program | Earnings taxed to distributee and are subject to a 10% penalty tax (exceptions, e.g., beneficiary's death or disability, receipt of scholarship, apply). |
Other education-related changes | |
Area of change | New rules for 2002 |
Expenses eligible for employer-paid education exclusion | Graduate or undergraduate studies, effective for expenses relating to courses beginning after 2001 (had applied to undergraduate studies only). |
Estate & gift tax changes
Area of change | New rules for 2002 |
Annual per-donee gift tax exclusion | $11,000 (up from $10,000 for 2001); $22,000 for spouses who split gifts (up from $20,000 for 2001). |
From RIA (https://www.RIAhome.com)