Individual income tax returns, 2002

Statistics of Income Bulletin, Fall, 2004 by Michael Parisi, Scott Hollenbeck

Interest on Student Loans.--For Tax Year 2002, income thresholds for eligible taxpayers to deduct up to $2,500 of interest paid on qualified higher educational loans were increased. These loans must have gone towards qualified expenses of either the taxpayer, taxpayer's spouse, or any dependent of the taxpayer at the time the debt was incurred. The taxpayer's modified AGI must have been less than: $65,000 if single, head of household, or qualifying widow(er) ($55,000 for 2001); or $130,000 if married filing jointly ($75,000 for 2001). The provision that limited the deduction to interest paid in the first 60 months was eliminated.

Retirement Savings Contributions Credit.--A taxpayer could take a credit of up to $1,000 for qualified retirement savings contributions if his or her adjusted gross income was less than $25,000 ($37,500 if head of household, $50,000 if married filing jointly). Approximately 5.4 million taxpayers took this new credit, reducing income tax by about $1.1 billion for 2002.

Tax Rate Reduction.--For tax years beginning after December 31,2001, a 10-percent regular income tax rate bracket was used for a portion of all taxpayers' taxable incomes. Also, for Tax Year 2002, there was a reduction of the former tax rates of 27.5 percent, 30.5 percent, 35.5 percent, and 39.1 percent to 27.0 percent, 30.0 percent, 35.0 percent, and 38.6 percent, respectively.

Tuition and Fees Deduction.--A taxpayer was able to deduct up to $3,000 of the qualified tuition and fees paid for self, a spouse, or dependents if the taxpayer's modified AGI was under $65,000 ($130,000 if married filing jointly). This deduction could not be taken if the person could be claimed as a dependent on another taxpayer's return or if he or she claimed the education credit for the same student. Approximately 3.5 million taxpayers took this new adjustment, deducting $6.2 billion from income for 2002.

Self-Employed Health Insurance Deduction.--A self-employed taxpayer was able to deduct up to 70 percent of health insurance expenses for 2002 up from 60 percent for 2001.

Data Sources and Limitations

These statistics are based on a sample of individual income tax returns (Forms 1040, 1040A, and 1040EZ, including electronically-filed returns) filed during Calendar Year 2003. Returns in the sample were stratified based on: (1) the larger of positive income or negative income; (2) the size of business and farm receipts; (3) the presence or absence of specific forms or schedules; and (4) the usefulness of returns for tax policy modeling purposes [11]. Returns were then selected at rates ranging from 0.05 percent to 100 percent. The 2002 data are based on a sample of 175,566 returns and an estimated final population of 130,540,073 returns. The corresponding sample and population for the 2001 data were 191,975 and 130,571,421 returns, respectively.

Since the data presented here are estimates based on a sample of returns filed, they are subject to sampling error. To properly use the statistical data provided, the magnitude of the potential sampling error must be known; coefficients of variation (CV's) are used to measure that magnitude. Figure M shows estimated CV's for the numbers of returns and money amounts for selected income items. The reliability of estimates based on samples, and the use of coefficients of variation for evaluating the precision of estimates based on samples, are discussed in the Appendix to this issue of the Bulletin.