The IRS has announced that, for tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation.

By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. New dollar amounts affecting 2012 returns include the following:

• The value of each personal and dependent exemption will be $3,800, up $100 from 2011.
• The new standard deduction is $11,900 for married couples filing a joint return, up $300; $5,950 for singles and married individuals filing separately, up $150; and $8,700 for heads of household, up $200.
• Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.

Credits, Deductions, and Related Phaseouts

• For tax year 2012, the maximum earned income tax credit (EITC) for low- and moderate-income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.
• The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.
• The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.
• For 2012, annual deductible amounts for medical savings accounts increased from the tax year 2011 amounts:

The $2,500 maximum deduction for interest paid on student loans begins to phase out for married taxpayers filing a joint return at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phaseout limits for tax year 2011. For single taxpayers, the phaseout ranges remain at the 2011 levels.

Estate and Gift

• For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5.12 million, up from $5 million for calendar year 2011. Also, if the executor chooses to use the special-use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,04 million, up from $1,02 million for 2011.
• The annual exclusion for gifts remains at $13,000.

Other Items

• The monthly limit on the value of qualified transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011. However, the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012.
• Several tax benefits are unchanged in 2012. For example, the additional standard deduction for blind people and senior citizens remains at $1,150 for married individuals and $1,450 for singles and heads of household.

Details on these inflation adjustments can be found in Revenue Procedure 2011-52.

Retirement Plans

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.
• The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phaseout range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.
• The AGI phaseout range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phaseout range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phaseout range remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low- and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.

Details on retirement plan inflation adjustments can be found in Information Release 2011-103.