SECTION 2. CHANGES

.01 Section 201 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) amended § 24 to

increase the amount of credit under § 24 that may be refundable. The value in § 24(d)(1)(B)(i) used in determining the new potentially refundable amount is adjusted for inflation.

.02 The amounts in § 25A(b)(1) which are used in determining the Hope Scholarship Credit and the amounts in § 25A(d)(2)(A)(ii) which are used in determining the reduction in the

TABLE 1—Section 1(a).—MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES

If Taxable Income Is: The Tax Is:

Not Over $12,000 10% of the taxable income Over $12,000 but not over $46,700 $1,200 plus 15% of excess over $12,000 Over $46,700 but not over $112,850 $6,405 plus 27% of excess over $46,700

Over $112,850 but not over $171,950 $24,265.50 plus 30% of excess over $112,850

Over $171,950 but not over $307,050 $41,995.50 plus 35% of excess over $171,950

Over $307,050 $89,280.50 plus 38.6% of excess over $307,050

TABLE 2—Section 1(b).—HEADS OF HOUSEHOLDS

If Taxable Income Is: The Tax is:

Not Over $10,000 10% of the taxable income

Over $10,000 but not over $37,450 $1,000 plus 15% of excess over $10,000

Over $37,450 but not over $96,700 $5,117.50 plus 27% of the excess over $37,450

Over $96,700 but not over $156,600 $21,115 plus 30% of the excess over $96,700

Over $156,600 but not over $307,050 $39,085 plus 35% of the excess over $156,600

Over $307,050 $91,742.50 plus 38.6% of the excess over $307,050

TABLE 3—Section 1(c).—UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES AND HEADS OF

HOUSEHOLDS).

If Taxable Income Is: The Tax Is:

Not over $6,000 10% of the taxable income Over $6,000 but not over $27,950 $600 plus 15% of the excess over $6,000

Over $27,950 but not over $67,700 $3,892.50 plus 27% of the excess over $27,950 Over $67,700 but not over $141,250 $14,625 plus 30% of the excess over $67,700 Over $141,250 but not over $307,050 $36,690 plus 35% of the excess over $141,250 Over $307,050 $94,720 plus 38.6% of the excess over $307,050

December 26, 2001 624 2001–52 I.R.B.

TABLE 4—Section 1(d). —MARRIED INDIVIDUALS FILING SEPARATE RETURNS

If Taxable Income Is: The Tax Is:

Not Over $6,000 10% of the taxable income Over $6,000 but not over $23,350 $600.00 plus 15% of the excess over $6,000 Over $23,350 but not over $56,425 $3,202.50 plus 27% of the excess over $23,350 Over $56,425 but not over $85,975 $12,132.75 plus 30% of the excess over $56,425 Over $85,975 but not over $153,525 $20,997.75 plus 35% of the excess over $85,975 Over $153,525 $44,640.25 plus 38.6% of the excess over $153,525

TABLE 5—Section 1(e). —ESTATES AND TRUSTS

If Taxable Income Is: The Tax Is:

Not Over $1,850 15% of the taxable income

Over $1,850 but not over $4,400 $277.50 plus 27% of the excess over $1,850

Over $4,400 but not over $6,750 $966.00 plus 30% of the excess over $4,400

Over $6,750 but not over $9,200 $1,671.00 plus 35% of the excess over $6,750

Over $9,200 $2,528.50 plus 38.6% of the excess over $9,200

.02 Unearned Income of Minor Chil- dren Taxed as if Parent’s Income (the “Kiddie Tax”) . For tax years beginning in 2002, the amount in § 1(g)(4)(A)(ii)(I), which is used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax,” is $750. (This amount is the same as the $750 standard deduction amount provided in section 3.07(2) of this revenue procedure.) The same $750 amount is also used for purposes of § 1(g)(7) (that is, determining whether a parent may elect to include a child’s gross income in the parent’s gross income and for calculating the “kiddie tax”). For example, one of the requirements for such a parental election is that a child’s gross income be more than the amount referenced in § 1(g)(4)(A)(ii)(I) but less than 10 times such amount; thus, a child’s gross income for 2002 must be more than $750 but less than $7,500 to satisfy that requirement.

.03 Child Tax Credit . Section 201 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) amended § 24 to increase the amount of credit under § 24 that may be refundable. The value in § 24(d)(1)(B)(i) used in determining the new potentially refundable amount is adjusted for inflation. For tax years beginning in 2002, that value is $10,350.

.04 Hope and Lifetime Learning Cred- its.

(1) For taxable years beginning in 2002, 100 percent of qualified tuition and related expenses not in excess of $1,000 and 50 percent of such expenses in excess of $1,000 are taken into account in determining the amount of the Hope Scholarship Credit under § 25A(b)(1).

(2) For tax years beginning in 2002, a taxpayer’s modified gross income in excess of $41,000 ($82,000 in the case of a joint return) is taken into account

in determining the reduction under § 25A(d)(2)(A)(ii) in the amount of the Hope Scholarship and Lifetime Learning Credits otherwise allowable under § 25A(a).

.05 Earned Income Tax Credit. (1) In general . For tax years beginning in 2002, the following amounts are used to determine the earned income tax credit under § 32(b). The “earned income amount” is the amount of earned income at or above which the maximum amount of the earned income tax credit is allowed. The “threshold phaseout amount” is the amount of adjusted gross income (or, if greater, earned income) above which the maximum amount of the credit begins to phase out. The “completed phaseout amount” is the amount of adjusted gross income (or if greater, earned income) at or above which no credit is allowed.

2001–52 I.R.B 625 December 26, 2001

Item Number of Qualifying Children One Two or More None Earned Income Amount $ 7,370 $10,350 $ 4,910 Maximum Amount of Credit $ 2,506 $ 4,140 $ 376 Threshold Phaseout Amount $13,520 $13,520 $ 6,150 Completed Phaseout Amount $29,201 $33,178 $11,060 Threshold Phaseout Amount

(Married Filing Jointly) $14,520 $14,520 $ 7,150 Completed Phaseout Amount

(Married Filing Jointly) $30,201 $34,178 $12,060

poses of the alternative minimum tax under § 55 may not exceed the sum of (A) such child’s earned income for the taxable year, plus (B) $5,500.

.07 Standard Deduction. (1) In general . For tax years beginning in 2002, the standard deduction amounts under § 63(c)(2) are as follows:

The Internal Revenue Service, in the instructions for the Form 1040 series, provides tables showing the amount of the earned income tax credit for each type of taxpayer.

(2) Excessive investment income. For tax years beginning in 2002, the earned income tax credit is denied under § 32(i)

if the aggregate amount of certain investment income exceeds $2,550.

.06 Alternative Minimum Tax Exemp- tion for a Child Subject to the “Kiddie Tax.” For tax years beginning in 2002, in the case of a child to whom the § 1(g) “kiddie tax” applies, the exemption amount under § 55 and § 59(j) for pur

Filing Status Standard Deduction

MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES (§ 1(a)) $7,850

HEADS OF HOUSEHOLDS (§ 1(b)) $6,900

UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES AND HEADS OF HOUSEHOLDS) (§ 1(c)) $4,700

MARRIED INDIVIDUALS FILING SEPARATE RETURNS (§ 1(d)) $3,925

(2) Dependent . For tax years beginning in 2002, the standard deduction amount under § 63(c)(5) for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $750, or the sum of $250 and the individual’s earned income.

(3) Aged and blind . For tax years beginning in 2002, the additional standard deduction amounts under § 63(f) for the aged and for the blind are $900 for each. These amounts are increased to $1,150 if the individual is also unmarried and not a surviving spouse.

.08 Overall Limitation on Itemized Deductions . For tax years beginning in 2002, the “applicable amount” of adjusted gross income under § 68(b), above which the amount of otherwise allowable item

ized deductions is reduced under § 68, is $137,300 (or $68,650 for a separate return filed by a married individual).

.09 Qualified Transportation Fringe . For tax years beginning in 2002, the monthly limitation under § 132(f)(2)(A), regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass, is $100. The monthly limitation under § 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $185.

.10 Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses. For tax years beginning in 2002, the exclusion under § 135, regarding income from United States savings bonds for taxpayers

who pay qualified higher education expenses, begins to phase out for modified adjusted gross income above $86,400 for joint returns and $57,600 for other returns. This exclusion completely phases out for modified adjusted gross income of $116,400 or more for joint returns and $72,600 or more for other returns.

.11 Personal Exemption. (1) Exemption amount . For tax years beginning in 2002, the personal exemption amount under § 151(d) is $ 3,000.

(2) Phase out . For tax years beginning in 2002, the personal exemption amount begins to phase out at, and is completely phased out after, the following adjusted gross income amounts:

December 26, 2001 626 2001–52 I.R.B.

AGI Above Which Exemption Fully Phased Out

Filing Status

AGI — Beginning Phaseout

Code § 1(a) $206,000 $328,500 Code § 1(b) $171,650 $294,150 Code § 1(c) $137,300 $259,800 Code § 1(d) $103,000 $164,250

.12 Eligible Long-Term Care Premiums . For tax years beginning in 2002, the limitations under § 213(d), regarding eligible longterm care premiums includible in the term “medical care,” are as follows:

Attained age before the close of the taxable year: Limitation on premiums:

40 or less $ 240 More than 40 but not more than 50 $ 450

More than 50 but not more than 60 $ 900

More than 60 but not more than 70 $2,390

More than 70 $2,990

qualified real property resulting from electing to use § 2032A that is taken into account for purposes of the estate tax may not exceed $820,000.

.19 Annual Exclusion for Gifts. (1) For calendar year 2002, the first $11,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 made during that year.

(2) For calendar year 2002, the first $110,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under §§ 2503 and 2523(i)(2) made during that year.

.20 Generation-Skipping Transfer Tax Exemption . For calendar year 2002, the generation-skipping transfer tax exemption under § 2631, which is allowed in determining the “inclusion ratio” defined in § 2642, is $1,100,000.

.21 Luxury Automobile Excise Tax. For calendar year 2002, the excise tax under §§ 4001 and 4003 is imposed on the first retail sale of a passenger vehicle (including certain parts or accessories installed within six months of the date after the vehicle was first placed in service), to the extent the price exceeds $40,000. .22 Passenger Air Transportation Excise Tax . For calendar year 2002, the

.13 Medical Savings Accounts. (1) Self-only coverage . For tax years beginning in 2002, the term “high deductible health plan” as defined in § 220(c)(2)(A) means, in the case of selfonly coverage, a health plan which has an annual deductible that is not less than $1,650 and not more than $2,500, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $3,300.

(2) Family coverage . For tax years beginning in 2002, the term “high deductible health plan” means, in the case of family coverage, a health plan which has an annual deductible that is not less than $3,300 and not more than $4,950, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $6,050.

.14 Treatment of Dues Paid to Agricul- tural or Horticultural Organizations . For tax years beginning in 2002, the limitation under § 512(d)(1), regarding the exemption of annual dues required to be paid by a member to an agricultural or horticultural organization, is $120.

.15 Insubstantial Benefit Limitations for Contributions Associated with Chari- table Fund-Raising Campaigns.

(1) Low cost article . For tax years beginning in 2002, the unrelated business

income of certain exempt organizations under § 513(h)(2) does not include a “low cost article” of $7.90 or less.

(2) Other insubstantial benefits . For tax years beginning in 2002, the $5, $25, and $50 guidelines in section 3 of Rev. Proc. 90–12 (1990–1 C.B. 471) (as amplified and modified), for disregarding the value of insubstantial benefits received by a donor in return for a fully deductible charitable contribution under § 170, are $7.90, $39.50, and $79.00, respectively.

.16 Funeral Trusts . For a contract entered into during calendar year 2002 for a “qualified funeral trust,” as defined in § 685, the trust may not accept aggregate contributions by or for the benefit of an individual in excess of $7,700.

.17 Expatriation to Avoid Tax . For calendar year 2002, the thresholds used under § 877(a)(2), regarding whether an individual’s loss of United States citizenship had the avoidance of United States taxes as one of its principal purposes, are more than $120,000 for “average annual net income tax” and $599,000 or more for “net worth.”

.18 Valuation of Qualified Real Prop- erty in Decedent’s Gross Estate . For an estate of a decedent dying in calendar year 2002, if the executor elects to use the special use valuation method under § 2032A for qualified real property, the aggregate decrease in the value of

2001–52 I.R.B 627 December 26, 2001

tax exemption), section 3.21 (luxury automobile excise tax), section 3.22 (passenger air transportation excise tax), section 3.25 (persons against which a federal tax lien is not valid), section 3.26 (property exempt from levy), section 3.27 (interest on a certain portion of the estate tax payable in installments), section 3.28 (attorney fee awards), and section 3.29 (periodic payments received under qualified long-term care insurance contracts or under certain life insurance contracts).