Members of recognized religious sects. Beginning in 2002, self-employed members of recognized religious sects who are exempt from self-employment tax may be eligible to participate in SEP, SIMPLE, or Keogh retirement plans. For more information see Publication 560, Retirement Plans for Small Business.

Earned income credit. Beginning in 2002, the following changes will take effect.

• Earned income will no longer include employee compensation that is nontaxable.
• Your earned income credit will be figured using your adjusted gross income, not your modified adjusted gross income.

For other changes to the earned income credit, see Publication 596.

Increased contribution limits for traditional IRAs and Roth IRAs. For 2002, allowable contributions to a traditional IRA and a Roth IRA will be increased to $3,000 ($3,500 if age 50 or over). In prior years, contributions were limited to $2,000.

Increased self-employment health insurance deduction. In 2002, the self-employed health insurance deduction will increase from 60% (in 2001) to 70% of the cost of the insurance.

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