(Bloomberg) President Barack Obama and First Lady Michelle Obama earned $608,611 in adjusted gross income in 2012, down 23 percent from 2011 as royalties from Obama’s books continued to decline, tax returns released today showed.

Obama, 51, and his wife paid $112,214 in federal taxes for an 18.4 percent rate. That’s less than the 20.5 percent rate they paid the year before.

While still making more than 10 times the U.S. median income, they made less money in 2012 than in any year since 2004, when Obama was running for the U.S. Senate in Illinois.

By taking widely used deductions for state and local taxes, mortgage interest and charitable contributions, the Obamas were able to get themselves out of the top marginal tax bracket, which was 35 percent last year.

In 2012, the Obamas made $150,034 in charitable contributions and paid $45,046 in mortgage interest on their home in Chicago.

Their largest charitable contribution—$103,871—went to the Fisher House Foundation, which assists military families. They also donated money to the American Red Cross, the National AIDS Fund, the University of Hawaii Foundation and Sidwell Friends School, which their daughters attend. The Obamas reported paying $29,450 in Illinois income taxes.

Households making between $500,000 and $1 million paid an average federal income tax rate of 20.6 percent in 2012, according to the nonpartisan Tax Policy Center. That’s not a perfect comparison to the Obamas’ 18.4 percent rate, in part because some of their federal taxes are payroll taxes on income from book sales. Obama’s salary as president is $400,000.

In 2012, Vice President Joseph Biden and his wife, Jill, had $385,072 in adjusted gross income and paid $87,851 in federal taxes for a 22.8 percent rate.

The Bidens donated $7,190 to charity.

Book Sales
The president’s book earnings have declined during his time in office. This year, the Obamas reported business income of $258,772, down from $441,369 in 2011 and $1.4 million in 2010.

The Obamas’ adjusted gross income in 2012 was 11 percent of what they made in 2009, his first year in office and the peak of his income from two books, Dreams from My Father and The Audacity of Hope. In 2010 he published a book aimed at children, Of Thee I Sing: A Letter to My Daughters.

The tax increases on top earners that Obama signed into law in January take effect for tax year 2013 and some of them may make the president pay a higher rate when he files next year.

Tax Changes
Obama would also pay more in taxes if the budget he proposed this week is passed by Congress. He proposed limiting the value of itemized deductions and other tax breaks of top earners to the value they would get if they were in the 28 percent tax bracket, which ends at $223,050 of taxable income for married couples.

The Obamas’ taxable income was $335,026.

The Obamas would pay about $3,300 more in taxes under the new rates laws passed January 1 and that apply starting this year using figures from their 2012 return, according to an analysis by Tony Nitti, a tax partner at WithumSmith+Brown in Aspen, Colo.

This Year
More of their income would be subject to tax because their adjusted gross income exceeds $300,000. Congress reinstated limits on the value of deductions and personal exemptions at that threshold for 2013. Still, the loss of those breaks wouldn’t change the Obamas’ tax liability much because they also are subject to the Alternative Minimum Tax, Nitti said.

The added tax bite mainly would come from higher payroll taxes and two new levies starting this year as a result of the 2010 health care reform law, he said. Congress let a 2-percentage-point cut in the payroll tax expire at the end of last year for all taxpayers. The Obamas also are subject to a new 0.9 percent surtax on wages and 3.8 percent added tax on investment income for individuals making more than $200,000 and couples earning more than $250,000.

Top Rates
The Obamas would owe even more in the analysis if the president’s original proposal had passed, Nitti said. He wanted to raise income tax rates for individuals making more than $200,000 and couples earning more than $250,000. Instead, Congress raised the top rate to 39.6 percent from 35 percent for taxable income above $400,000 for singles and $450,000 for couples.

“There were a lot of taxpayers that were spared at the last minute,” Nitti said. “You need to look no further than the president of the United States.”

The Obamas reported $11,462 in taxable interest and $2 in dividends while taking a $3,000 capital loss against their ordinary income. According to financial disclosure forms released last year, at the end of 2011, their net worth was between $2.6 million and $8.3 million. Between $1.6 million and $6.25 million of that amount was invested in U.S. Treasury notes and bills.

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