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New Tax Deductions and Limits for 2012

Feb 17, 2012
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With the start of 2012, there are a number of new tax laws and adjustments. From higher tax bracket thresholds and standard deductions, to an end to the Social Security tax holiday, you’ll have some positive and negative changes to your taxes this year.

Social Security tax to return to 6.2%

Whether you realized it or not, you had a Social Security tax “holiday” in 2011, which lowered the rate you pay on your Social Security taxes from 6.2% down to 4.2%. Congress recently approved an extension of that tax break but it’s only through February 29, 2012. So unless they extend it again, you’ll be paying 6.2% again after that.

The wage limit on which can be taxed for Social Security also rose from $106,800 in 2011 to $110,100.

Higher federal income tax-bracket thresholds

A number of tax changes in 2012 have been due to standard inflation-related adjustments.

First, the federal income tax thresholds have risen for each filing status across the board. The threshold separating the 15% and 25% tax brackets is now $35,350 for singles and $70,700 for married couples, up from the 2011 amounts of $34,501 for singles and $69,001 for couples.

The jump from the 25% bracket to the 28% bracket is now $85,650 for singles and $142,700 for married couples. That’s up from $83,601 for singles and $139,351 for married couples.

Higher standard deductions and personal exemptions

There are also higher standard deductions. For singles it is now $5,950, up from $5,800 in 2011. Married couples can also squeak out $300 more on their standard deduction which is now set at $11,900.

Each personal and dependent exemption is now worth $3,800, one hundred dollars more than it was in 2011.

It really doesn’t amount to much (a savings of $37.50 for singles and $75 for married couples) but when it comes to handing over your money to Uncle Sam, every dollar counts.

Possibility of no patch for the AMT

The Tax Policy Center estimates that up to 31 million taxpayers will be exposed to a possible Alternative Minimum Tax this year because the annual patch has not yet been put in place to raise exemption levels.

Basically, you are required to calculate your taxes two ways and pay the larger of two amounts. This was originally created 40 years ago to stop the wealthy from getting massive tax breaks but it is now hitting a lot of middle-class taxpayers. In 2011, a single taxpayer and married couple triggered the AMT exemption at $48,450 and $74,450, respectively.

As of now, unless the patch is reinstated for 2012, the new exemption levels will fall back to $33,750 for singles and $45,000 for married couples.

Higher maximum earned income tax credits

The maximum amount of the earned income tax credit for low and moderate income workers and families is also up in 2012. It is now up to $5,891 from $5,751 in 2011 and the maximum income limit is up as well, from $49,078 to $50,270 married filing jointly.

Higher retirement account contribution limits

The IRS has also increased the contribution limits for certain type of retirement accounts including 401(k)s, 403(b)s, Thrift Savings Plans and most 457 plans. The new limits are now $17,000, up $500 from 2011.

The income cap on Roth IRA eligibility has also been rising over the years and is now up to $183,000 for a marriage couple filing jointly in 2012. For singles, the income cap is now set at $125,000.

Mortgage insurance deductions in limbo

The deduction for homeowners paying private mortgage insurance was created in 2007 as part of the Tax Relief and Health Care Act of 2006. If you have under 20% equity in your home and are required by your lender to carry the insurance, you could deduct the cost of the premiums, assuming you fell within the maximum income requirements. You can track this equity with personal finance software.

That deduction officially ended in 2011, so unless it is renewed this year, you won’t be able to claim it in 2012.

Mass transit benefit

A 2009 federal stimulus provision had raised the maximum tax-free benefit and employee could use towards transit from $120 to $230. The break expired for 2011 and the new maximum is now $125. So if you’re receiving $300 from your employer for transit, you’ll now be taxed on that $175 difference.

Tuition deduction

While federal tax law offers a number of incentives to encourage you to get an education, the $4,000 tuition and fees deduction officially expired at the end of 2012. Congress may reinstate the break but unless they do, you’ll have to look towards the American Opportunity Tax Credit and Lifetime Learning credit (if you qualify) which do not expire until the end of 2011.

Craig Guillot is a business and personal finance writer from New Orleans. He covers insurance, investing, real estate, retirement and debt. His work has appeared in such publications and web sites as Entrepreneur,,, and Investor’s Business Daily. He is the author of “ Stuff About Money: No BS Financial Advice for Regular People .”

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on your taxes, your investments, the law or any other business and professional matters that affect you and/or your business.


  1. Social Security tax to return to 6.2%- this needs updated

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