2012 Tax Brackets

The IRS gives us a sneak peak of new federal income tax brackets for the year 2012

Fall is an exciting time of year for the tax obsessed because we get our first glimpse at the 2012 tax brackets! That’s right – it’s not even time to file our 2011 taxes and already we get a sneak peak of what lies beyond.

Last year the unveiling of the federal income tax brackets was a bit more exciting because of the raging Congressional battle over the extension of the Bush tax cuts. As late as December, it was still unclear what the brackets and rates would look like for 2011.

This year, on the other hand, it’s been pretty standard, even if the expiration of the cuts in 2012 promises some tax fireworks next year.

The IRS cannot adjust the federal income tax brackets on a whim. First, the agency must wait for the latest inflation figures for the month of August. From September 2010 to August 2011 the irate of inflation was 2.43%, which was slightly below the average for the last 20 years but above the previous year’s rate of 1.48%.

To calculate the 2012 tax brackets, the IRS takes the brackets from the base year of 1992, adjusts rates based on the Jobs and Growth Tax Reconciliation Act of 2003, and then raises the bracket levels to keep up with inflation.

Then the upper limit of every bracket is rounded down to the nearest multiple of 50, except for the married filing separately brackets, which are rounded down to the nearest multiple of 25.

For a more thorough explanation of the math behind the brackets, check out the Tax Foundation website. They’re more than happy to explain all the complicated adjustments.

So, without further ado, here are the 2012 tax brackets:

Marginal Tax Rate	Single Taxable Income	Married Filing Jointly Taxable Income
10%	$0-$8,700	$0-$17,400
15%	$8,701-$35,350	$17,401-$70,700
25%	$35,351-$85,650	$70,701-$142-700
28%	$85,651-$178,650	$142,701-$217,450
33%	$178,651-$388,350	$217,451-$388,350
35%	$388,351+	$388,351+

Remember, being in a certain bracket doesn’t mean that all of your income is taxed at that rate, only the portion of your income that falls above that tax bracket.

The 2012 standard deduction and personal exemption were also announced along with the new brackets. The new personal exemption is $3,800 and the standard deduction is

• $5,900 for single or married filing separately
• $11,900 for married filing jointly
• $8,700 for head of household

The additional standard deduction for the blind or those over 65 remains unchanged at $1,450 for single filers and $1,150 for married filers.

The good news is that slightly higher brackets and a slightly higher standard deduction equal slightly lower taxes because more of your income is taxed at the lower brackets. Minus other factors, a couple that makes $100,000 should pay $185 less.

Note that all of these new figures are only projected. They are still subject to change if Congress decides to pass new tax legislation. But in all likelihood these are the rates we’ll be dealing with for 2012.

2012 hasn’t even begun yet, and it’s still too early to get started on your 2011 taxes, but now is a great time to take care of prior year taxes and start the new year with a clean slate.