IRS Issues Official Inflation-adjusted Tax Amounts for 2006

By law, a variety of tax provisions are revised each year to keep pace with inflation. Next year, the personal exemption and standard deductions will rise, tax brackets will widen, and individuals will be able to make larger tax-free gifts, thanks to inflation adjustments announced by the IRS. In fact, more than three dozen tax benefits, affecting virtually every taxpayer, will be modified for 2006. The more widely used amounts are reproduced below—see Rev. Proc. 2005-70 (2005-47 IRB) for the complete list. Tax Rate Tables. The tax rate tables for tax years beginning in 2006 will be as follows: Married Individuals Filing Joint Returns and Surviving Spouses If Taxable Income Is: The Tax Will Be: Not over $15,100 10% of the taxable income Over $15,100 but not over $61,300 $1,510 plus 15% of excess over $15,100 Over $61,300 but not over $123,700 $8,440 plus 25% of excess over $61,300 Over $123,700 but not over $188,450 $24,040 plus 28% of excess over $123,700 Over $188,450 but not over $336,550 $42,170 plus 33% of excess over $188,450 Over $336,550 $91,043 plus 35% of excess over $336,550 Heads of Households If Taxable Income Is: The Tax Will Be: Not over $10,750 10% of the taxable income Over $10,750 but not over $41,050 $1,075 plus 15% of excess over $10,750 Over $41,050 but not over $106,000 $5,620 plus 25% of excess over $41,050 Over $106,000 but not over $171,650 $21,857.50 plus 28% of excess over $106,000 Over $171,650 but not over $336,550 $40,239.50 plus 33% of excess over $171,650 Over $336,550 $94,656.50 plus 35% of excess over $336,550 Unmarried Individuals (Other Than Surviving Spouse and Heads of Households) If Taxable Income Is: The Tax Will Be: Not over $7,550 10% of the taxable income Over $7,550 but not over $30,650 $755 plus 15% of excess over $7,550 Over $30,650 but not over $74,200 $4,220 plus 25% of excess over $30,650 Over $74,200 but not over $154,800 $15,107.50 plus 28% of excess over $74,200 Over $154,800 but not over $336,550 $37,675.50 plus 33% of excess over $154,800 Over $336,550 $97,653 plus 35% of excess over $336,550 Married Individuals Filing Separate Returns If Taxable Income Is: The Tax Will Be: Not over $7,550 10% of the taxable income Over $7,550 but not over $30,650 $755 plus 15% of excess over $7,550 Over $30,650 but not over $61,850 $4,220 plus 25% of excess over $30,650 Over $61,850 but not over $94,225 $12,020 plus 28% of excess over $61,850 Over $94,225 but not over $168,275 $21,085 plus 33% of excess over $94,225 Over $168,275 $45,521.50 plus 35% of excess over Over $168,275 $168,275 Estates and Trusts If Taxable Income Is: The Tax Will Be: Not over $2,050 15% of the taxable income Over $2,050 but not over $4,850 $307.50 plus 25% of excess over $2,050 Over $4,850 but not over $7,400 $1,007.50 plus 28% of excess over $4,850 Over $7,400 but not over $10,050 $1,721.50 plus 33% of excess over $7,400 Over $10,050 $2,596 plus 35% of excess over $10,050 Standard Deduction. For tax years beginning in 2006, the standard deduction amounts will be as follows: Filing Status Standard Deduction Married Individuals Filing Joint Returns and Surviving Spouses $10,300 Heads of Households $7,550 Unmarried Individuals (Other Than Surviving Spouses and Heads of Households) $5,150 Married Individuals Filing Separate Returns $5,150 The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer will not exceed the greater of (1) $850 or (2) the sum of $300 and the individual's earned income. The additional standard deduction amounts for the aged and for the blind will be $1,000 for each. These amounts will be increased to $1,250 if the individual is also unmarried and not a surviving spouse. Personal Exemption. For tax years beginning in 2006, the personal exemption amount will be $3,300. The personal exemption amount will begin to phase out at, and will be completely phased out after, the following adjusted gross income amounts: Filing Status AGI—Beginning of Phaseout AGI—Exemption Fully Phased Out Married Individuals Filing Joint Returns and Surviving Spouses $225,750 $348,250 Heads of Households $188,150 $310,650 Unmarried Individuals (Other Than Surviving Spouses and Heads of Households) $150,500 $273,000 Married Individuals Filing Separate Returns $112,875 $174,125 Annual Exclusion for Gifts. For calendar year 2006, the first $12,000 of gifts to any person (other than gifts of future interests in property) will not be included in the total amount of taxable gifts made during the year. Section 179 Expense. For tax years beginning in 2006, the aggregate cost of Section 179 property a taxpayer can expense cannot exceed $108,000. This limitation will be reduced (but not below zero) by the amount by which the cost of Section 179 property placed in service during the 2006 tax year exceeds $430,000. Kiddie Tax Amounts. For 2006, the amount used to reduce the net unearned income reported on the child's return that is subject to the kiddie tax will be $850. The same $850 amount will be used for determining whether a parent may elect to include a child's gross income in the parent's gross income and for calculating the kiddie tax. Child Tax Credit. For tax years beginning in 2006, the value used in determining the amount of the credit under IRC Sec. 24 that may be refundable will be $11,300.   Earned Income Credit. For tax years beginning in 2006, the following amounts will be used to determine the earned income credit. The "earned income amount" is the amount of earned income at or above which the maximum amount of the earned income credit is allowed. The "threshold phaseout amount" is the amount of adjusted gross income (or, if greater, earned income) above which the maximum amount of the credit begins to phase out. The "completed phaseout amount" is the amount of adjusted gross income (or if greater, earned income) at or above which no credit is allowed. Number of Qualifying Children Item One Two or More None Earned Income Amount $8,080 $11,340 $5,380 Maximum Amount of Credit $2,747 $4,536 $412 Threshold Phaseout Amount (Single, Surviving Spouse, or Head of Household) $14,810 $14,810 $6,740 Completed Phaseout Amount (Single, Surviving Spouse, or Head of Household) $32,001 $36,348 $12,120 Threshold Phaseout Amount (Married Filing Jointly) $16,810 $16,810 $8,740 Completed Phaseout Amount (Married Filing Jointly) $34,001 $38,348 $14,120 Overall Limitation on Itemized Deductions. For tax years beginning in 2006, the "applicable amount" of adjusted gross income above which the amount of otherwise allowable itemized deductions is reduced will be $150,500 (or $75,250 for a separate return filed by a married individual). Qualified Transportation Fringe. For tax years beginning in 2006, the monthly limitation for transportation in commuter highway vehicles and for transit passes will be $105, while the monthly limitation for qualified parking will be $205. Medical Savings Accounts. For tax years beginning in 2006, a high deductible plan will be a health plan with an annual deductible of at least $1,800 and no more than $2,700 for individual coverage (or at least $3,650 and no more than $5,450 for family coverage). In addition, the maximum out-of-pocket expenses (including the deductible) required for covered costs must be no more than $3,650 for individual coverage or $6,650 for family coverage. Health Savings Accounts. For calendar year 2006, the monthly limitation on deductions for an individual with self-only coverage under a high deductible plan as of the first day of such month will be 1/12 of the lesser of the annual deductible or $2,700. The monthly limitation for an individual with family coverage under a high deductible plan as of the first day of such month will be 1/12 of the lesser of the annual deductible, or $5,450. For calendar year 2006, a high deductible health plan will mean a health plan with an annual deductible that is not less than $1,050 for self-only coverage or $2,100 for family coverage, and an annual limit on total out-of-pocket costs for covered benefits of no more than $5,250 for self-only coverage or $10,500 for family coverage.