Inflation Adjustments Affecting Individual Taxpayers in 2002: Analysis and Commentary
Posted: 27 Sep 2001
Without inflation adjustments to key portions of the tax system, individuals would be faced with an erosion of their purchasing power. Beginning in 1985, Congress implemented an indexation procedure to adjust various income tax components, including the tax rate schedules, standard deduction, and personal and dependency exemptions. Although suspended by the Tax Reform Act of 1986, indexation resumed in 1989 and now applies to many items in the tax system.
In this article, Young discusses 2002 inflation adjustments to specific portions of the individual tax system that are tied to a "consumer price index year" ending in August. Items adjusted by this indexation procedure include the tax rate schedules, standard deductions, exemptions (and related phase-out), the overall limit on itemized deductions, and some computational elements related to the unearned income of minor children, child credit, earned income credit, educational savings bonds, education credits, qualified transportation fringe benefits, medical savings accounts, and long-term care insurance premiums.
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