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Contributions to traditional I.R.A.'s are fully deductible if you -- or you and your spouse if filing jointly -- do not have retirement plans through work.
For example, the Tax Policy Center gets most of its data from tax returns and counts the income of the tax filer (and spouse, if filing jointly); the Census bureau gets its data from surveys and counts the income of everyone in a household, including roommates and teenagers.
To contribute you must have an adjusted gross income below $110,000 if single or $220,000 if filing jointly.
In the Senate bill, to claim the full deduction individuals must have incomes below $250,000 if filing separately and below $500,000 if filing jointly.
The SEC defines this as either a) someone who has $1 million of net worth, less the value of their primary residence, or b) someone who expects to earn $200,000 $300,0000 if filing jointly) per year and has done so for the last two years.
As an incentive to help low- and moderate-income workers save for retirement through an IRA or company-sponsored plan, many are eligible for a Retirement Savers' Tax Credit of up to $1,000 $2,0000 if filing jointly).
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The W-2 limitations do not apply if you earn less than $157,500 (if single; $315,000 if married filing jointly).
The bill would cap the total deduction at $1,000 (if married filing jointly, $500 if single).
In addition, the income limits where the credit phases out are increased as well, from $75,000 (if single, $110,000 if married filing jointly) to $250,000 and $500,000.
In addition, beginning January 1 , 2013 an extra 0.9% tax is tacked on to a taxpayer's self-employment income in excess of $250,000 (if married filing jointly, $200,000 if single).
Most excited about the changes, however, will be those earning more than $500,000 (if single, $600,000 if married filing jointly), who under current law are paying 39.6% on their last dollar of income, but will now top out at 37%.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com