Standard Deduction

<div class="Section1">Two spouses may file a joint return. Same-sex couples who are married under state law must now file either jointly or married filing separately for 2013 and beyond because of the Supreme Court’s <em>Windsor</em> decision.<a href="#_ftn1" name="_ftnref1">¹</a> Gross income and deductions of both spouses are included; however, a joint return may be filed even though one spouse has no income. A widow or widower <em>who has a dependent child</em> may file as a “surviving spouse” and calculate tax using joint return tax rates for two years after the taxable year in which the spouse died. However, no personal exemption is allowed for the deceased spouse except in the year of death (note that the personal exemption was suspended from 2018-2025).<a href="#_ftn2" name="_ftnref2">²</a></div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. <em>Windsor v. U.S</em>., 133 S. Ct. 2675 (2013).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. IRC §§ 1(a), 2(a), 6013(a). <em><em>See</em></em> IRC § 151(b).<br /> <br /> </div>

<div class="Section1">The individual rate brackets, basic standard deduction, and personal exemption amounts are adjusted annually for inflation.<a href="#_ftn1" name="_ftnref1">¹</a> Indexing also applies to the additional standard deduction for the blind and elderly, the adoption credit, the exclusion for employer-provided adoption assistance, the exemption amount for the alternative minimum tax, and the threshold income levels for: phaseout of personal exemptions (which were suspended for 2018-2025); phaseout of the savings bond interest exclusion; phaseout of the deduction for interest on a qualified education loan; phaseout of the adoption credit; phaseout of the exclusion for employer-provided adoption assistance; and the ceiling on itemized deductions (note that all miscellaneous itemized deductions subject to the 2 percent floor were suspended for 2018-2025).<a href="#_ftn2" name="_ftnref2">²</a> The American Opportunity and Lifetime Learning Credits are also indexed for inflation, as are the threshold income levels for their phaseout.<a href="#_ftn3" name="_ftnref3">³</a><div class="Section1"><br /> <br /> Indexing provides the benefit of preventing tax rate increases that result purely from inflation, as taxpayers&rsquo; escalating income levels push them into higher tax brackets. It also ensures that the income levels at which certain tax benefits are eliminated remain at inflation-adjusted levels so that the provisions continue to benefit those taxpayers for whom they were intended.<br /> <br /> Prior to 2018, the indexing factor (referred to in the IRC as the cost-of-living adjustment) was the percentage by which the Consumer Price Index (CPI) for the <em>prior</em> calendar year exceeded the CPI for a year designated as a reference point in each respective IRC Section. In all cases, the CPI is the average Consumer Price Index as of the close of the 12-month period ending on August 31 of the calendar year.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> The 2017 Tax Act provides that items that are adjusted annually for inflation will now be adjusted based on the Chained Consumer Price Index for All Urban Consumers (C-CPI-U), as published by the Department of Labor, for tax years beginning after December 31, 2017 (this change is therefore permanent).<a href="#_ftn5" name="_ftnref5">⁵</a> Essentially, the C-CPI-U is designed to take into account the fact that individuals change their purchasing habits as the cost of certain goods increases or decreases (in order to substitute lower priced goods for higher priced goods). C-CPI-U is designed to take into account purchasing patterns both before and after a price change.<br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> This modification to the inflation indexing method was expected to push more taxpayers into higher tax brackets more quickly than under prior law. This is both because of the fact that C-CPI-U indexing makes it appear that inflation is growing faster than under CPI indexing, and because many employment-related increases in income are based on the CPI.<br /> <br /> <hr><br /> <br /> Regardless of the index that is used, in calculating the new tax rate schedules, the minimum and maximum dollar amounts for each rate bracket (except as described below) are increased by the applicable cost-of-living adjustment. The rates (percentages) themselves are not adjusted. This method of increase explained above, however, does not apply to the phaseout of the marriage penalty (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="753">753</a>).<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> The Secretary of the Treasury has until December 15 of each calendar year to publish new tax rate schedules (for joint returns, separate returns, single returns, head of household returns and for returns by estates and trusts) that will be effective for taxable years beginning in the subsequent calendar year.<a href="#_ftn7" name="_ftnref7">⁷</a> See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="753">753</a>.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;IRC &sect;&sect; 1(f), 63(c)(4), 151(d)(4).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;IRC &sect;&sect; 63(c)(4), 23(h), 137(f), 151(d)(4)(B), 135(b)(2)(B), 221(g), and 68(b)(2).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;IRC &sect; 25A(h).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;IRC &sect;&sect; 1(f)(3), 1(f)(4).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;IRC &sect;&sect; 1(f)(3), 1(f)(6).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp;IRC &sect; 1(f)(2).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp;IRC &sect; 1(f)(1).<br /> <br /> </div></div><br />

<div class="Section1">The 2017 tax reform legislation changed the income tax rates that will apply to trusts and estates. These rates were especially important for 2018 and 2019 because taxpayers could elect to apply these rates to the unearned income of minors (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="679">679</a> and Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8602">8602</a>). The SECURE Act eliminated this option for tax years beginning after 2019.<div><br /> <p class="PA">The applicable tax rates and income thresholds for 2025 are outlined in the chart below:</p><br /> <br /> </div><table border="1" align="center"><br /> <tbody><br /> <tr><br /> <td style="text-align: center;" width="324"><strong>Tax Rate</strong></td><br /> <td style="text-align: center;" align="center" width="216"><strong>Trusts and Estate Income</strong></td><br /> </tr><br /> <tr><br /> <td width="324">10%</td><br /> <td align="center" width="216">$0 to $3,150</td><br /> </tr><br /> <tr><br /> <td width="324">$315 plus 24% of the excess over $3,150</td><br /> <td align="center" width="216">$3,150-$11,450</td><br /> </tr><br /> <tr><br /> <td width="324">$2,307 plus 35% of the excess over $11,450</td><br /> <td align="center" width="216">$11,450-$15,650</td><br /> </tr><br /> <tr><br /> <td width="324">$3,777 plus 37% of the excess over $15,650</td><br /> <td align="center" width="216">Over $15,650</td><br /> </tr><br /> </tbody><br /> </table><p><br /> The applicable tax rates and income thresholds for 2024 are outlined below:<br /> </p><div class="Section1"><br /> <table border="1" align="center"><br /> <tbody><br /> <tr><br /> <td style="text-align: center;" width="324"><strong>Tax Rate</strong></td><br /> <td style="text-align: center;" align="center" width="216"><strong>Trusts and Estate Income</strong></td><br /> </tr><br /> <tr><br /> <td width="324">10%</td><br /> <td align="center" width="216">$0 to $3,100</td><br /> </tr><br /> <tr><br /> <td width="324">$310 plus 24% of the excess over $3,100</td><br /> <td align="center" width="216">$3,100-$11,150</td><br /> </tr><br /> <tr><br /> <td width="324">$2,242 plus 35% of the excess over $11,150</td><br /> <td align="center" width="216">$11,150-$15,200</td><br /> </tr><br /> <tr><br /> <td width="324">$3659.50 plus 37% of the excess over $15,200</td><br /> <td align="center" width="216">Over $15,200</td><br /> </tr><br /> </tbody><br /> </table><br /> These applicable tax rates and income thresholds<a href="#_ftn1" name="_ftnref1">¹</a> are set to expire for tax years beginning after December 31, 2025.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; Rev. Proc. 2024-40, Rev. Proc. 2023-34.<br /> <br /> </div></div><br />