High-Income Taxpayers Should Maximize Charitable Contributions, Itemized Deductions in 2010

April 30, 2010

If high-incometaxpayers are contemplating a major charitable gift in the near future, 2010 is the year to do it — before restrictions on itemized deductions return in 2011 from a one-year hiatus. The so-called PEP and Pease provisions of the federal individual income tax, which limit the benefits of the personal exemption and itemized deductions for taxpayers over a certain income level, have been repealed for 2010 but are scheduled to return in 2011.

A new Tax Foundation special report, "PEP and Pease: Repealed for 2010 But Preparing a Comeback," authored by Chief Economist Patrick Fleenor, explains the history of the provisions and outlines how the reinstatement of the tax laws will affect taxpayers at various income levels under President Obama's budget.

PEP and Pease have created significant problems, raising marginal tax rates and adding to tax complexity. In some cases, PEP and Pease push the marginal tax rate up substantially. Next year, under President Obama's budget, a married couple filing jointly with combined AGI of $254,550 would pay a 28 percent rate without PEP and Pease, but a 30.5 percent rate with PEP and Pease.

The report is part of a longer Tax Foundation series analyzing the effects of the expiration of the Bush tax cuts.

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