The Bureau of Labor Statistics recently released the CPI-U figure for August 2011, thereby providing the last part information necessary for the calculation of the 2012 tax brackets.
The main cause the August inflation figure may be the last piece had to calculate next year’s tax brackets is that, according to the internal revenue code, for reasons calculating tax brackets:
“The cost-of-living adjustment for the calendar year is definitely the percentage (if any) wherein the CPI for ones preceding year or so, exceeds the CPI for ones 365 days 1992. [...] The CPI for your twelve months is the average of one's Consumer Price Index in the close with the 12-month period ending on August 31 of these year or so.”
So, in short, to calculate the year’s tax brackets, you're the 1992 tax brackets, adjust the tax rates good Jobs and Growth Tax Relief Reconciliation Act of 2003, then adjust the applicable income levels upward according to inflation.
If for example the upper income limit for just about any income tax bracket determined while in the above manner isn't a multiple of $50, it’s rounded as small as closest multiple of $50 - apart from married filing separately tax brackets, where you round down to the closest multiple of $25.
The end result, the September 2010 - August 2011 average CPI-U was 2.43% raised above the September 2009 - August 2010 average CPI-U. And therefore leaves us with the following tax brackets. (Due to the Tax Foundation for doing the math, also to their analyst Nick Kasprak for explaining it in my opinion!)
A quick reminder before we get within the tax bracket tables: Getting into a stipulated income tax bracket does not always mean that most of your respective income is going to be taxed during that rate. Rather, the perfect a part of your revenue that's for the reason that bracket will taxed during this rate. (See this article to get a more complete explanation.)
PROJECTED 2012 STANDARD DEDUCTION AND EXEMPTION
The regular deduction and private exemptions are calculated similarly (that is, using annual inflation figures from September-August) but different base years (1987 for the standard deduction and 1988 for exemptions).
For 2012 the projected personal exemption is $3,800, together with the projected standard deductions are:
$5,950 for single taxpayers and married taxpayers filing separately,
$11,900 for married taxpayers filing jointly, and
$8,700 for taxpayers filing as head of household.
Any additional standard deduction for taxpayers who happen to be blind or older age 65 is projected to be unchanged at $1,450 for single taxpayers and $1,150 for married taxpayers.
Important caveat: Everything above is subjected to change. Should any new tax legislation be passed ahead of the end of these year (or passed in 2012 and made effective for any year), this information could come to be entirely incorrect.
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