Income Tax Changes 2008

We're going to start the New Year with our annual review of tax changes that apply to the coming year - 2008.  We'll brief you on changes to IRA contributions, tax exemptions, as well as standard deductions, and mileage reimbursement rates for 2008.

Federal Income Taxes in 2008

The tax filing deadline for the tax year 2007 is April 15, 2008 - which falls on a Tuesday.  In this publication we're going to be talking about changes that become effective in the year 2008, and will become part of your tax documents to be filed with the IRS in April 2009.

Social Security and Medicare

In 2008, the Medicare tax stays at 1.45% of all taxpayer income, and Social Security remains at 6.2%.  The wage limit, or Social Security maximum, has been raised $4,500 to $102,000.  That's an increase of 4.6% over last year's maximum.  That rate of increase is also slightly higher than that of inflation, or the cost of living increase you might get from your employer.  The maximum Social Security benefit was increased to $2,185 per month in 2008, and the Cost of Living Adjustment (COLA) was 2.3%

Standard Deduction Amounts

According to statistics published by the IRS, around two out of every three taxpayers claim the standard deduction on their income tax returns.  The good news for all of those taxpayers taking the standard deduction is that all of the deductions are higher in 2008.  The exact amount depends on your filing status, whether you're 65 or older, blind, or if an exemption can be claimed for you by another taxpayer.  With that in mind, the standard deduction amounts for 2008 include:

• Single - $5,450 
• Married filing separately - $5,450
• Head of household - $8,000 
• Married taxpayers filing jointly / qualifying widow(er)s  - $10,900 
• Married taxpayers filing separately - $5,450

Exemption Value in 2008

The amount you can deduct for each exemption you can claim on your federal income taxes has increased again in 2008.  The 2007 value of $3,400 has increased to $3,500 in 2008.  That's an increase of $100 in each of the last two years.

Mileage Deduction Rates

As was the case in 2007, the IRS is telling us once again that it's more expensive to drive your car in 2008.  And that means the standard mileage deduction rates are increasing.
The following table outlines the mileage deduction rates for the tax year 2008:

Mileage Deduction Rates 2008

We've got more detail on this topic in our article entitled - Mileage Reimbursement Rate.

Increase to Earned Income Credit

The maximum earned income tax credit for low and middle income workers and working families with two or more children is $4,824 in 2008, up from $4,716 in 2007. The qualifying income limit for the credit for joint return filers with two or more children is $41,646 in 2008, up from $39,783.

Lifetime Learning and Hope Credits

In 2008, tax law changes also apply to the Hope Credit.  The maximum Hope Credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.

Contributions to Retirement Accounts

There wasn't a lot of good news in 2008 for those of you that would like to increase your annual contribution to a retirement account.  Contribution limits for 401k and 403b plans ($15,500 plus catch-up contributions of $5,000) as well as SIMPLE retirement plans ($10,500 plus catch-up contributions of $2,500) remained unchanged from 2007

Income limits for contributions to traditional IRAs as well as Roth IRA plans, however, did increase in 2008.  Income phase-out thresholds for Roth IRAs now start for $159,000 for those filing joint returns, and $101,000 for those with a filing status of single or head of household.

If you're covered by a retirement plan at work, and you are considering contributing to a tax-deductible traditional IRA, then the income phase-out limits start at $85,000 for joint filers, and increases to $53,000 for those with a filing status of single or head of household.

About the Author - Income Tax Changes 2008

Copyright © 2007 Money-Zine.com

Tax Resources on the Web