October 18, 2007
2008 Inflation Adjustments Widen Tax Brackets, Raise IRA/401(k) Limits and Expand Tax Benefits
WASHINGTON — For 2008, personal exemptions and standard deductions will rise, tax brackets will widen and workers will be able to save more for retirement, thanks to inflation adjustments announced today by the Internal Revenue Service.
By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2008. Key changes affecting 2008 returns, filed by most taxpayers in early 2009, include the following:
- The value of each personal and dependency exemption, available to most taxpayers, is $3,500, up $100 from 2007.
- The new standard deduction is $10,900 for married filing a joint return, $5,450 for singles and married filing separately, and $8,000 for heads of household.
- Tax-bracket thresholds increase for each filing status.
- The maximum earned income tax credit is $4,824. The income limit for the credit for joint return filers with two or more children is $41,646.
- The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
- The income limit for the savers credit is $53,000 for joint filers, $39,750 for heads of household, and $26,500 for singles and married persons filing separately.
- Contributions to a Roth IRA begins to phase out for joint filers with incomes exceeding $159,000, and $101,000 for singles and heads of household.
- Contributions to a traditional IRA for participats in employer qualified plans begins to phase out for joint filers with incomes exceeding $85,000, and $53,000 for singles and heads of household.
- 401(k) plans and 403(b) plans for employees of public schools and certain tax-exempt organizations can contribute up to $15,500 unchanged from 2007.
- Individuals, age 50 or over, can make an additional 401(k) plans and 403(b) plan contribution of up to $5,000, also unchanged from 2007.
- Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007.
- Those, age 50 or over, can make an additional SIMPLE retirement plan contributions of up to $2,500, also unchanged from 2007.
- The annual contribution limit for most defined contribution plans rises to
$46,000, up from $45,000 in 2007.
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