Rev. Proc. 90-64

Rev. Proc. 90-64

SECTION 1. PURPOSE

This revenue procedure sets forth the following inflation adjusted items for taxable years beginning in 1991:

1. the tax rate tables for individuals and for estates and trusts;

2. the basic standard deduction amounts for different filing statuses, the limitation on the standard deduction in the case of certain dependents, and the additional standard deductions for the aged and blind;

3. the personal exemption;

4. the earned income credit;

5. the amounts allowed against unearned income in computing the "kiddie tax," which taxes a minor child's net unearned income at the marginal rate that applies to the income of the child's parent; and

6. the limitations on the exclusion of income from the redemption of United States savings bonds for taxpayers who pay qualified higher education expenses.

SECTION 2. 1991 TAX RATE TABLES

The following adjusted tax rate tables are prescribed in lieu of the tables in subsections (a), (b), (c), (d), and (e) of section 1 of the Code with respect to taxable years beginning in 1991.

      TABLE 1 -- Section 1(a). -- MARRIED INDIVIDUALS FILING JOINT

01 The following adjusted standard deduction amounts are prescribed in lieu of the amounts set forth in section 63(c)(2) of the Code with respect to taxable years beginning in 1991.

      Filing Status                           Standard Deduction

03 The additional standard deduction amount for the aged and blind allowed under section 63(f) of the Code for taxable years beginning in 1991 is $650. That amount is increased to $850 if the individual is also unmarried and not a surviving spouse.

SECTION 4. 1991 PERSONAL EXEMPTION

01 Section 151(b) of the Code generally allows a taxpayer an exemption for himself or herself. Section 151(c) generally allows a taxpayer additional exemptions for dependents as defined in section 152. The personal exemption for tax years beginning in 1991 is $2,150.

02 Section 151(d) of the Code provides for the phaseout of the tax benefit of the personal exemptions allowed by section 151. For 1991 the threshold amounts at which that phaseout begins are as follows:

                   Section 1(a)             $150,000

SECTION 5. 1991 EARNED INCOME CREDIT

01 Section 32 of the Code provides a "basic earned income credit" which for 1991 is allowed at a rate of 16.7 percent for a taxpayer with one qualifying child and 17.3 percent for a taxpayer with two or more qualifying children. This credit may be increased by a "supplemental young child credit" which is allowed at a rate of 5 percent for a taxpayer with a qualifying child who has not attained age 1 as of the close of the calendar year. In addition, a "health insurance credit" is allowed at a rate of 6 percent for certain health insurance expenses.

02 For calendar years beginning in 1991, these credits will be allowed on the first $7,140 of earned income. These credits will be phased out if the taxpayer's adjusted gross income (or, if greater, earned income) exceeds $11,250.

03 For calendar years beginning in 1991, the maximum basic earned income credit will be $1,192 [.167 x $7,140] for a taxpayer with one qualifying child and $1,235 [.173 x $7,140] for a taxpayer with two or more qualifying children. The credit phases out at a rate of 11.93 percent for a taxpayer with one qualifying child and 12.36 percent for a taxpayer with two or more qualifying children and will phase out completely at $21,242 of adjusted gross income, or earned income, as the case may be.

04 For calendar years beginning in 1991, the maximum supplemental young child credit will be $357 [.05 x $7,140]. The credit phases out at a rate of 3.57 percent and will phase out completely at $21,244 of adjusted gross income, or earned income, as the case may be.

05 For calendar years beginning in 1991, the maximum health insurance credit will be $428 [.06 x $7,140]. The credit phases out at a rate of 4.285 percent and will phase out completely at $21,248 of adjusted gross income, or earned income, as the case may be.

SECTION 6. UNEARNED INCOME OF MINOR CHILDREN TAXED AS IF PARENT'S INCOME (THE "KIDDIE TAX")

01 Section 1(i) of the Code provides that the tax on the net unearned income of a child under the age of 14 is computed at the marginal rate of the child's parent. Under section 1(i)(4)(A)(ii) net unearned income generally equals unearned income less the sum of (I) the amount in effect for the taxable year under section 63(c)(5)(A), plus (II) the greater of the amount described in (I) or certain itemized deductions.

02 The amount in effect for 1991 under section 63(c)(5)(A) is $550. See section 3.02. Accordingly, for tax years beginning in 1991 net unearned income will generally equal unearned income less the greater of $1,100 or $550 plus certain itemized deductions.

SECTION 7. INCOME FROM UNITED STATES SAVINGS BONDS FOR TAXPAYER'S WHO PAY QUALIFIED HIGHER EDUCATION EXPENSES

01 Section 135 of the Code provides an exclusion for income from the redemption of United States savings bonds for taxpayers who pay qualified higher education expenses. The exclusion is phased out under section 135(b)(2) if the taxpayer's modified adjusted gross income exceeds $40,000 ($60,000 in the case of a joint return). The amount of a reduction is calculated by multiplying the amount otherwise excludable by a fraction. The numerator of the fraction is the excess of the modified adjusted gross income over the threshold amount and the denominator is $15,000 ($30,000 in the case of a joint return). For tax years beginning in 1991, the exclusion phases out if a taxpayer's modified adjusted gross income exceeds $41,950 ($62,900 in the case of a joint return) and the denominator of the fraction is $15,750 ($31,450 in the case of a joint return).

SECTION 8. COMPUTATION OF INFLATION ADJUSTMENTS

01 Section 1(f)(1) of the Code provides that not later than December 15 of each calendar year, the Secretary shall prescribe inflation-adjusted tax rate tables that apply in lieu of the tax rate tables in section 1 with respect to taxable years beginning in the succeeding calendar year.

Under section 1(f)(3) of the Code, the inflation adjustment for a calendar year is the percentage (if any) by which the Consumer Price Index (CPI) for the preceding calendar year exceeds the CPI for the calendar year 1989. For purposes of computing the inflation adjustment, section 1(f)(4) defines the CPI as the average of the 12 monthly CPIs for the 12-month period ending on August 31 of such calendar year. Under section 1(f)(5), the CPI is that for all-urban consumers published by the Department of Labor.

Section 1(f)(2)(A) of the Code provides that the inflation adjustment is reflected in the tax rate tables by increasing the minimum and maximum amounts subject to the 15%, 28%, and 31% tax brackets. Under section 1(f)(6), an adjusted bracket amount is "rounded down" to the nearest multiple of $50 ($25 in the case of married individuals filing separately).

02 Under section 63(c)(4) of the Code, the standard deduction amounts (including the limitation for certain dependents and the additional standard deduction for the aged or blind) are adjusted for inflation under the method described in section 1(f)(3), except that the preceding calendar year's CPI is compared with the CPI for the calendar year 1987. Under section 1(f)(6) an adjusted amount is "rounded down" to the nearest multiple of $50 ($25 in the case of married individuals filing separately).

03 Section 151(d)(3) of the Code provides that the personal exemption amount is adjusted for inflation under the method described in section 1(f)(3) except that the preceding calendar year's CPI is compared with the CPI for the calendar year 1988. The adjusted exemption is "rounded down" to the nearest multiple of $50 under section 1(f)(6).

04 Section 32(i) of the Code provides that the dollar amounts of the limitations applicable to the earned income credit are adjusted for inflation under the method described in section 1(f)(3), except that the preceding calendar year's CPI is compared with the CPI for the calendar year 1984. Under section 32(i)(3), an adjusted amount is rounded to the nearest multiple of $10 (or, if the adjusted amount is a multiple of $5, it is increased to the next highest multiple of $10).

05 Section 135(b)(2)(B) of the Code provides that the limitation on the exclusion of income from the redemption of United States savings bonds for taxpayers who pay qualified higher education expenses is adjusted for inflation under the method described in section 1(f)(3). The preceding calendar year's CPI is compared with the CPI for the calendar year 1989. The adjusted limitation is rounded to the nearest multiple of $50 (if the adjusted figure is a multiple of $25, it is increased to the next highest multiple of $50) under section 135(b)(2)(C).

SECTION 9. INFLATION ADJUSTMENT FACTORS

01 Tax rate tables and qualified higher education expense exclusion -- The CPI for 1990 is 128.0583333333 and the CPI for 1989 is 122.1500000000. Based on these figures, the inflation adjustment factor for the tax rate tables and the qualified higher education expense exclusion for taxable years beginning in 1991 is 1.0483694911.

02 Standard deduction -- The CPI for 1990 is 128.0583333333 and the CPI for 1987 is 111.9833333333. Based on these figures, the inflation adjustment factor for the standard deductions for taxable years beginning in 1991 is 1.1435481470.

03 Personal exemption -- The CPI for 1990 is 128.0583333333 and the CPI for 1988 is 116.6166666667. Based on these figures, the inflation adjustment for the personal exemption for taxable years beginning in 1991 is 1.0981134772.

04 Earned income credit -- The CPI for 1990 is 128.0583333333 and the CPI for 1984 is 102.4916666667. Based on these figures, the inflation adjustment for the earned income credit for taxable years beginning in 1991 is 1.2494511749.

SECTION 10. EFFECTIVE DATE

This revenue procedure is applicable for all taxable years beginning in 1991.

SECTION 11. DRAFTING INFORMATION

The principal author of this revenue procedure is John Moran of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Moran on (202) 566-6407 (not a toll-free call).

The economist responsible for development of the factors set forth in this revenue procedure is Mary-Helen Risler of the Research Division, Office of the Assistant Commissioner (Planning, Finance and Research). For further information regarding these factors, contact Ms. Risler on (202) 233-1206 (not a toll-free call).