Here's a rundown of the some of the most important changes that may affect you:
- Exemption. The personal and dependent exemption will increase to $3,800, from $3,700.
- Tax brackets. The thresholds for tax brackets will increase. For a married couple filing jointly, the point at which the 15 percent bracket moves up to 25 percent will rise to $70,700, up from $69,000 in 2011. For single filers, the 25 percent bracket will start at $35,350, up from $34,500 in 2011.
As a result of the tax bracket changes, a married couple with taxable income of $100,000 filing jointly would pay about $190 less in federal income tax. Single filers will enjoy similar reductions.
- Standard deductions. Filers taking the standard deduction will benefit from increases in all filing categories. For example, the standard deduction for a married couple filing jointly will increase by $300. For single filers and married couples filing separately, the standard deduction will increase by $150. According to the IRS, about two out of three taxpayers claim the standard deduction.
- 401(k)s. The maximum allowable contribution to 401(k) pension plans without the need to pay upfront taxes increases from $16,500 in 2011 to $17,000 for 2012.
This is the first increase in the maximum contribution since 2009 because inflation had been too low to trigger an increase. The increase also applies to 403(b) plans, most 457 plans and the federal government's Thrift Savings Plan.
Of course, not everyone is in a position to make the maximum allowable contribution. "In that case," says Jean Setzfand, vice president of financial security at AARP, "at the very least, you should contribute as much as your employer is willing to match."
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