Inflation Adjustments for 2009

Most numbers now available

By Kaye A. Thomas
Posted September 20, 2008

Unofficial calculations based on inflation statistics.

Inflation statistics for August recently released by the Department of Labor make it possible to calculate the personal exemption amount, standard deduction, tax brackets and other figures for 2009. The IRS has not yet made their official announcement of these numbers, so these figures should be regarded as preliminary.

Sharper increase this year

A recent surge in inflation pushed the 12-month number (September 1 through August 31) above 4% for the first time in seventeen years. As a result, some of the numbers changed more than in other recent years. The personal exemption amount, for example, has increased by $100 per year recently, but grows by $150 for 2009, from $3,500 to $3,650.

Getting over the hump

Adjustments occur only when the total change in a number is large enough to get to the next round number. (Different increments are used for rounding depending on the number being rounded.) That means some numbers can remain unchanged for a year or two. For 2008, the gift tax exemption amount remained unchanged at $12,000, but for 2009 it grows to $13,000.

The 2009 tax year is the first one for which an inflation adjustment applies to the amount you're allowed to contribute to an IRA. The inflation adjustment isn't enough to move us to the next round number, though, so the IRA contribution limit remains at $5,000 for those under 50 and $6,000 for those age 50 and above.

By the way, a recent study found that many taxpayers are confused about how this limit works when they contribute to Roth IRAs and traditional IRAs in the same year. This is a single limit that applies to the total amount contributed to both types of IRAs, so if you contribute $5,000 each to both types of IRA you'll be over the limit.

Some numbers not available

For reasons known only to a higher power, some numbers are adjusted for inflation based on the September numbers that come out in October, instead of the August numbers that come out in September. Among these numbers is the limit on contributions to 401k accounts, currently $15,500 for those under age 50. That number will rise to at least $16,000, but we'll need to see another inflation release before we know whether it goes the next increment, to $16,500.