Last year around this time we were in the middle of tax bracket drama as our elected officials in Washington D.C. were fighting over whether they would be extending the Bush tax cuts of the early 2000s (making them the Obama tax cuts?), or whether they would allow them to expire and rates to go up for everyone who pays taxes.
In the end Obama and the Democrats agreed to extend the tax cuts and in exchange were able to get the following concessions from Republicans:
- Extend Bush tax cuts for everyone, for 2 years.
- Reduce Social Security tax levied on a worker’s wages from 6.2% to 4.2% for one year.
- Reinstatement of the estate tax at 35%
- Extension of jobless benefits for another 13 months, beyond current 99 weeks.
- Extend current tax rates on capital gains and dividends for two years, including for higher earners.
- Extend a raft of business tax breaks, including credit for spending on research
The parts that affect most people include the extension of the rates for everyone (ensuring that taxes don't go up), and the reduction of the social security tax levied on worker's wages.
After this year, for the tax year 2012, social security tax levied on worker's income will be going back up to 6.2%. Get ready for the outcry!
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2012 Tax Rate Projections
For the 2012 tax year, the tax rates have not been released as of yet, but several groups have projected what the rates will be. The rates are calculated by the IRS with a complicated formulate based on inflation rates among other things. Thankfully we don't have to figure it out on our own.
As you can see, the rates haven't changed much from previous years, just some slight upticks in the lower and upper ends of each bracket.
| 2012 Tax Brackets | Single | Married Filing Jointly |
|---|---|---|
| 10% Bracket | $0 – $8,700 | $0 – $17,400 |
| 15% Bracket | $8,700 – $35,350 | $17,400 – $70,700 |
| 25% Bracket | $35,350 – $85,650 | $70,700 – $142,700 |
| 28% Bracket | $85,650 – $178,650 | $142,700 – $217,450 |
| 33% Bracket | $178,650 – $388,350 | $217,450 – $388,350 |
| 35% Bracket | $388,350+ | $388,350+ |
For comparison's sake, here is a look at the tax rates for 2011.
| 2011 Tax Brackets | Single | Married Filing Jointly |
|---|---|---|
| 10% Bracket | $0 – $8,500 | $0 – $17,000 |
| 15% Bracket | $8,500 – $34,500 | $17,000 – $69,000 |
| 25% Bracket | $34,500 – $83,600 | $69,000 – $139,500 |
| 28% Bracket | $83,600 – $174,400 | $139,500 – $212,300 |
| 33% Bracket | $174,400 – $379,150 | $212,300 – $379,150 |
| 35% Bracket | $379,150+ | $379,150+ |
Standard Deductions Rise
The standard deductions for married and single filers are projected to go up slightly as well.
- The standard deduction for married filing jointly is projected to rise to $11,900 in 2012 from $11,600 in 2011.
- The standard deduction for singles will rise to $5,950 in 2012 from $5,800 in 2011.
- Personal exemption rises to $3,800 in 2012 from $3,700 in 2011.
No Drama This Year, But Wait Until Next Year
So while the rates are seeing only slight changes this year due to inflation, next year could be shaping up for another battle. Not only will it be an election year, but the extension of the Bush tax rates will be up for debate again as they expire at the end of 2012. Buckle your safety belts, it's gonna be a bumpy ride!
What are your thoughts on what we could see next year when it comes to the tax rates? Will there be another battle about extending the rates?
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