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Indexing Provides Some Tax Relief: CCH Releases Tax Projections For 2003

(RIVERWOODS, ILL., September 19, 2002) – Indexing for inflation will bring some tax relief next year to those currently in the 27-percent and higher tax brackets, according to CCH INCORPORATED (CCH), a leading provider of tax law information and software, which today released estimated income ranges for each 2003 tax bracket.

Two examples show the tax savings:

• A married couple filing jointly with total taxable income of $100,000 could pay $90 less in income taxes in 2003.
• A single filer with taxable income of $50,000 will contribute $54 less next year.

For more than a decade, the U.S. tax code has required that federal income tax brackets and certain other figures be adjusted for inflation annually.

The adjustment is based on Consumer Price Index figures for September through August immediately prior to the adjusted year. CCH’s projections are based on the relevant inflation data released September 18, 2002, by the U.S. Department of Labor.

Annual inflation adjustments have been inserted into the Internal Revenue Code in recent years with increasing frequency. Aside from the 40 separate computations needed to inflation-adjust the tax bracket tables each year, the Code now requires over 50 other inflation-driven computations to determine deduction, exemption and exclusion amounts.

The IRS usually releases official numbers in December each year. CCH tax bracket projections are provided for illustrative purposes only, and should not be used for income tax returns or other federal income tax related purposes until confirmed by the IRS later this year.

George Jones, JD, LLM, senior federal tax analyst for CCH, observed that some items in the Code are not indexed for inflation, notably the new 10-percent bracket.

"This new lowest bracket applies to the first $6,000 of income for singles, $10,000 for heads of households and $12,000 for joint filers, regardless of inflation, from now until 2007. Then it will be raised by $1,000 for singles and $2,000 for joint filers, but it won’t be indexed until 2009," Jones said.

Indexing of brackets lowers tax bills by including more of people’s incomes in lower brackets – in the 15-percent rather than the 27-percent bracket, for example.

"This means that inflation adjustments to the brackets provides no relief for those already in the lowest two brackets," Jones added.

Even so, according to Jones, for many people, the size of the "tax cut" generated over the past several years by these inflation-factor increases is substantial.

"In 1997, the 15-percent bracket ended at $41,200 for joint filers, while for 2003, the amount covered by the top of the 15-percent bracket has increased to $47,450. That’s a $750 ‘tax cut’ per taxpayer at the top of the 2003 15-percent bracket, using current tax rates," said Jones

Adjusted for inflation, the standard deduction and personal exemption amounts are projected to increase as well for 2003. These increases can produce lower taxes by lowering the taxpayer’s taxable income

• Married couples filing jointly will see a projected $100 increase in their standard deduction, to $7,950.
• Single taxpayers could see a $50 increase over 2002 in their standard deduction, to $4,750.
• The additional standard deduction for those age 65 or older or who are blind increases $50 to $950 for married individuals and surviving spouses. It remains unchanged for single filers at $1,150.
• The personal exemption amount will go up in 2003 by $50 to $3,050.

Here, too, the inflation adjustments add up over time. For example, since 1988, the standard deduction for married taxpayers filing joint returns has grown through inflation by more than 50 percent, from $5,000 to the anticipated $7,950 amount for 2003.

Taxpayers can, however, lose much of the value of personal exemptions and itemized deductions when their incomes rise above certain levels. Those "phaseout" levels are also adjusted for inflation. For 2003, married couples filing jointly will begin to loose some of the value of any itemized deductions when their adjusted gross income exceeds $139,500. They will begin to lose some of the value of their personal exemptions when their adjusted gross income exceeds $209,250.

For a complete look at how income ranges for each tax bracket are projected to shift next year, see the attached CCH chart.

In general, inflation adjustments are rounded to the next-lower multiple of $50, so if the adjustment produces an increase of less than $50, no increase is made. The "kiddie" standard deduction, used on the returns of children who are claimed as dependents on their parents’ returns last increased in 2001, from $700 to $750.

The tax code only allows the gift tax exemption to rise when the inflation adjustment would produce an increase of $1,000 or more. That happened last year, when the exemption increased from $10,000 to its current $11,000. This year’s inflation figures don’t support a further increase, so the exemption will remain unchanged for 2003.

One tax amount will no longer undergo any computation for inflation starting in 2003, because the entire tax has been eliminated. The luxury auto tax, which has been imposed at 3 percent on vehicle costs over $40,000 in 2002, is eliminated entirely starting in 2003.

CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, legal, securities, insurance, human resources, health care and small business markets. CCH is a wholly owned subsidiary of Wolters Kluwer North America. The CCH web site can be accessed at cch.com. The CCH tax and accounting web site can be accessed at tax.cchgroup.com.

  Standard Deduction for Dependents ("Kiddie" Standard Deduction)

Income Level At Which 3-Percent Itemized
Deduction Limitation Takes Effect
(Adjusted Gross Income)

  Personal Exemption Amounts

Threshold for Personal Exemption Phaseout