Clergy Tax Facts®
New Tax Law Updates
Topics - Tax Year 2006
- Alternative Minimum Tax
- Archer MSA Limits Increased
- Charitable contributions
- Earned Income Credit
- Education savings bonds
- Electric and alternative motor vehicles
- Exemption amounts
- Health Savings Account
- Hope and Lifetime Learning Credits
- Itemized deductions
- Original Issue Discount Instruments
- Social security and Medicare taxes
- Split refund option
- Standard deduction
- Standard mileage rates
- Tax-exempt interest reporting
- Tax rate schedules - 2006
- Telephone Excise Tax Refund
Topics - Tax Year 2007 and later
- Adoption credit and Adoption assistance programs
- Archer MSA Limits Increased
- Charitable contributions
- Earned Income Credit
- Education savings bonds
- Exemption amounts
- Hope and Lifetime Learning credits
- Itemized deductions
- Long-Term Care Premiums
- Medicare Part D Premiums
- Social security and Medicare taxes
- Standard deduction
- Standard mileage rates
- Tax rate schedules - 2007
Tax Year 2006
Alternative Minimum Tax
For tax year 2006, the exemption amount for alternative minimum tax (AMT) has been increased as follows:
- Single -- $42,500
- Married filing jointly or surviving spouse -- $62,550
- Head of household -- $42,500
- Married filing separately -- $31,275
Archer MSA Limits Increased
For Archer MSA purposes for 2006, the minimum annual deductible of a high deductible health plan increased to $1,800 ($3,650 for family coverage). The maximum annual deductible of a high deductible health plan increased to $2,700 ($5,450 for family coverage). The maximum out-of-pocket expenses limit increased to $3,650 ($6,650 for family coverage).
Restrictions on Charitable Contributions
Cash contributions.
All cash contributions made in tax years beginning after August 17, 2006, to any qualified charity must be supported by a dated bank record or a dated receipt. The tax year for most individual taxpayers begins on January 1.
Clothing and household items.
Beginning with contributions made after August 17, 2006, no deduction is allowed for most contributions of clothing and household items unless the donated property is in good used condition or better.
Earned Income Credit Amounts Increase
Earned income amount.
The maximum amount of income you can earn and still get the credit is higher for 2006 than it is for 2005. You may be able to take the credit for 2006 if:
- You have more than one qualifying child and you earn less than $36,348 ($38,348 if married filing jointly),
- You have one qualifying child and you earn less than $32,001 ($34,001 if married filing jointly), or
- You do not have a qualifying child and you earn less than $12,120 ($14,120 if married filing jointly).
The maximum amount of adjusted gross income (AGI) you can have and still get the credit has also increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you.
Investment income amount.The maximum amount of investment income you can have in 2006 and still get the credit increases to $2,800.
Income Limits Increased for Reduction of Education Savings Bond Exclusion
For 2006, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $94,700 and $124,700. You cannot take the deduction if your MAGI is $124,700 or more. For 2005, the exclusion phased out between $91,850 and $121,8500.
For all other filing statuses, your interest exclusion is phased out if your MAGI is between $63,100 and $78,100. You cannot take a deduction if your MAGI is $78,100 or more. For 2005, the exclusion phased out between $61,200 and $76,200. For more information, see chapter 9 in Publication 970, Tax Benefits for Education.
Electric and Alternative Motor Vehicles
For 2006, the list of vehicles that are qualified hybrid vehicles for the Alternative Motor Vehicle Credit has been expanded. The tax credit for hybrid vehicles applies for vehicles purchased on or after January 1, 2006, and could be as much as $3,400 for those who purchase the most fuel-efficient vehicles.
Exemption Amount Increased
The amount you can deduct for each exemption has increased from $3,200 in 2005 to $3,300 in 2006.
You may lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2006, the phaseout begins at:
- $112,875 for married persons filing separately,
- $150,500 for single individuals
- $188,150 for heads of household, and
- $225,750 for married persons filing jointly or qualifying widow(er)s.
Health Savings Account (HSA) Deduction Limits Increased
For 2006, the maximum HSA deduction increased to $2,700 ($5,450 for family coverage). The maximum additional deduction for individuals age 55 or older increased to $700. For HSA purposes, the minimum annual deductible of a high deductible health plan increased to $1,050 ($2,100 for family coverage) and the maximum annual deductible and other out-of-pocket expenses limit increased to $5,250 ($10,500 for family coverage). For more information, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.
Income Limits Increased for Hope and Lifetime Learning Credits
For 2006, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $45,000 and $55,000 ($90,000 and $110,000 if you file a joint return). You cannot claim an education credit if your MAGI is $55,000 or more ($110,000 or more if you file a joint return). This is an increase from the 2005 limits of $43,000 and $53,000 ($87,000 and $107,000 if filing a joint return). For more information, see chapters 2 and 3 in Publication 970, Tax Benefits for Education.
Limit on Itemized Deductions Increases
If your adjusted gross income is above a certain amount, you may lose part of your itemized deductions. In 2006, this amount is increased to $150,500 ($75,250 if married filing separately). In 2005, the amount was $145,950 ($72,975 if married filing separately). Beginning in 2006, the amount by which these itemized deductions are reduced is only 2/3 of the amount of the reduction that otherwise would have applied.
Social Security and Medicare Taxes
For 2006, the employer and employee will continue to pay:
- 6.2% each for social security tax (old-age, survivors, and disability insurance), and
- 1.45% each for Medicare tax (hospital insurance).
Wage limits. For social security tax, the maximum amount of 2006 wages subject to the tax has increased from $90,000 to $94,200. For Medicare tax, all covered 2006 wages are subject to the tax.
New Option to Split Refunds Between Bank Accounts
Beginning in 2007, a new refund option is available for filers of Form 1040, Form 1040A, Form 1040EZ, Form 1040NR, Form 1040NR-EZ, Form 1040-PR, and Form 1040-SS.
Filers of these tax forms for 2006 will be able to elect to have their federal income tax refund automatically deposited into two or three accounts at a bank or other financial institution (such as a mutual fund, brokerage firm, or credit union). Individuals electing this split refund option must file Form 8888, Direct Deposit of Refund to More Than One Account, which will be available by the end of 2006.
Publication 1212, Guide to Original Issue Discount (OID) Instruments
Publication 1212 will no longer be revised annually and therefore does not contain the original issue discount (OID) tables, Sections I-A through III-G.
Standard Deduction Amount Increased
The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is, in most cases, higher for 2006 than it was for 2005. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer.
The basic standard deduction amounts for 2006 are:
- Head of household - $7,550
- Married taxpayers filing jointly and qualifying widow(er)s - $10,300
- Married taxpayers filing separately - $5,150
- Single - $5,150
The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $850 or the sum of $300 and the individual's earned income.
Standard Mileage Rates
For tax years beginning in 2006, the allowable deductions for the standard mileage rate are as follows:
- Business miles. The standard mileage rate for the cost of operating your car changes to 44.5 cents a mile for all business miles driven.
- Charitable services. The standard mileage rate allowed for use of your car when you use your car to provide charitable services to a charitable organization is 14 cents a mile.
- Charitable services - Hurricane Katrina relief services. If you used your vehicle in giving services to a charitable organization to provide relief related to Hurricane Katrina, the standard mileage rate allowed for use of your car is 32 cents a mile.
- Medical reasons. The standard mileage rate allowed for use of your car for medical reasons is 18 cents a mile.
- Moving. The standard mileage rate for determining moving expenses is 18 cents a mile.
Tax-Exempt Interest Reporting
Beginning in 2006, state and local governments are required to report interest paid on tax-exempt state and local bonds on Form 1099-INT, Interest Income. This amount must be shown on your tax return and is for information only.
2006 Federal Income Tax Rate Schedules
The 2006 tax rate schedules are provided so that you can compute your estimated tax for 2006.
Telephone Excise Tax Refund
The Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. Individuals, businesses and tax-exempt organizations are eligible to request it.
Taxpayers have a choice: a standard refund amount between $30 and $60, based on the total number of exemptions claimed on their 2006 tax return, to eliminate the need to locate old phone bills; or they can locate those bills and use the actual amount.
Tax Years 2007 and Later
Adoption
Adoption credit
Beginning in 2007, the credit allowed for an adoption of a child with special needs is $11,390 and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $11,390. The credit begins to phase out if you have modified adjusted gross income of $170,820 or more and is completely phased out if you have modified adjusted gross income of $210,820 or more. Adoption assistance program
Beginning in 2007, you may be able to exclude up to $11,390 from your gross income for qualifed adoption expenses paid or incurred by your employer under a qualified adoption assistance program in connection with your adoption of an eligible child. This income exclusion starts to phase out if your modified adjusted gross income is $170,820 or more and is completely phased out if your modified adjusted gross income is $210,820 or more.
Archer MSA Limits Increased
For Archer MSA purposes for 2007, the minimum annual deductible of a high deductible health plan increases to $1,900 ($3,750 for family coverage). The maximum annual deductible of a high deductible health plan increases to $2,850 ($5,650 for family coverage). The maximum out-of-pocket expenses limit increases to $3,750 ($6,900 for family coverage).
Restrictions on Charitable Contributions
All cash contributions made in tax years beginning after August 17, 2006, to any qualified charity must be supported by a dated bank record or a dated receipt.
Earned Income Credit Amounts Increase
Earned income amount.
The maximum amount of income you can earn and still get the credit is higher for 2006 than it is for 2005. You may be able to take the credit for 2007 if:
- You have more than one qualifying child and you earn less than $37,783 ($39,783 if married filing jointly),
- You have one qualifying child and you earn less than $33,241 ($35,241 if married filing jointly), or
- You do not have a qualifying child and you earn less than $12,590 ($14,590 if married filing jointly).
The maximum amount of adjusted gross income (AGI) you can have and still get the credit has also increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you.
Investment income amount.The maximum amount of investment income you can have in 2007 and still get the credit increases to $2,900.
Income Limits Increased for Reduction of Education Savings Bond Exclusion
For 2007, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $98,400 and $128,400. You cannot take the deduction if your MAGI is $128,400 or more. For 2006, the exclusion phased out between $94,700 and $124,700.
For all other filing statuses, your interest exclusion is phased out if your MAGI is between $65,600 and $80,600. You cannot take a deduction if your MAGI is $80,600 or more. For 2006, the exclusion phased out between $63,100 and $78,100. For more information, see chapter 9 in Publication 970, Tax Benefits for Education.
Exemption Amount Increased
The amount you can deduct for each exemption has increased from $3,300 in 2006 to $3,400 in 2007.
You may lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2007, the beginning and ending phaseout amounts are:
| Filing Status | Adjusted Gross Income -- Beginning of Phaseout | Adjusted Gross Income -- Maximum Phaseout |
| Single | $156,400 | $278,900 |
| Married filing jointly and Surviving spouse | $234,600 | $357,100 |
| Married filing separately | $117,300 | $178,550 |
| Head of household | $195,500 | $318,000 |
Income Limits Increased for Hope and Lifetime Learning Credits
For 2007, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $47,000 and $57,000 ($94,000 and $114,000 if you file a joint return). You cannot claim an education credit if your MAGI is $57,000 or more ($114,000 or more if you file a joint return). This is an increase from the 2006 limits of $45,000 and $55,000 ($90,000 and $110,000 if filing a joint return). For more information, see chapters 2 and 3 in Publication 970, Tax Benefits for Education.
Increase in Deductible Limit for Long-Term Care Premiums
For 2006, the maximum amount of qualified long-term care premiums you can include as medical expenses has increased. You can include qualified long-term care premiums, up to the amounts shown below, as medical expenses on Schedule A (Form 1040).
- Age 40 or under - $280.
- Age 41 to 50 - $530.
- Age 51 to 60 - $1,060.
- Age 61 to 70 - $2,830.
Note: The limit is for each person.
Limit on Itemized Deductions Increases
If your adjusted gross income is above a certain amount, you may lose part of your itemized deductions. In 2007, this amount is increased to $156,400 ($78,200 if married filing separately). See Publication 505 for more information on figuring the amount you can deduct.
Medicare Part D Premiums Deductible as Medical Expenses
Medicare Part D is a voluntary prescription drug insurance program for persons with Medicare A or B. You can include as a medical expense premiums you pay for Medicare D.
Social Security and Medicare Taxes
For 2007, the employer and employee will continue to pay:
- 6.2% each for social security tax (old-age, survivors, and disability insurance), and
- 1.45% each for Medicare tax (hospital insurance).
Wage limits. For social security tax, the maximum amount of 2007 wages subject to the tax is $97,500. For Medicare tax, all covered 2007 wages are subject to the tax.
Standard Deduction Amount Increased
The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is, in most cases, higher for 2007 than it was for 2006. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer.
The basic standard deduction amounts for 2007 are:
- Head of household $7,850
- Married taxpayers filing jointly and qualifying widow(er)s $10,700
- Married taxpayers filing separately $5,350
- Single $5,350
The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $850 or the sum of $300 and the individual's earned income.
For 2007, the additional standard deduction amount for a person who is age 65 or older or blind is $1,050. If you are single and not a surviving spouse, the additional standard deduction amount is $1,300.
Standard Mileage Rates
Beginning January 1, 2007, the allowable deductions for the standard mileage rate are as follows:
- Business miles. The standard mileage rate for the cost of operating your car increases to 48.5 cents a mile for all business miles driven.
- Charitable services. The standard mileage rate allowed for use of your car when you use your car to provide charitable services to a charitable organization remains at 14 cents a mile.
- Medical reasons. The standard mileage rate allowed for use of your car for medical reasons increases to 20 cents a mile.
- Moving. The standard mileage rate for determining moving expenses increases to 20 cents a mile.
2007 Tax Rate Schedules
The 2007 tax rate schedules are provided so that you can compute your estimated tax for 2007.